BPO Outsourcing

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Accessing Developing Countries
Knowledge Pool and
Creating a Global Thinking
System
Searching for a more effective way to access cutting-
edge technology without the huge capital outlay?
Driven by an increasing cost structure in a
competitive business? Then business process
outsourcing may just be answers.
BPO is the delegation of one or more IT-intensive
business processes to an external provider that in
turn owns, administers, and manages the selected
process based on defined and measurable
performance criteria
Once used for cost savings in transaction-
intensive, back office business processes, BPO has
emerged as a flexible and powerful approach to
achieve a wide range of tactical and strategic
aims, among others.
What is BPO?

In general terms, BPO is getting labor intensive,
mundane back room day to day business processes
performed elsewhere, where these tasks could be
inexpensively undertaken. It requires
knowledgeable personnel, some of them preferably
with MBA or CA degrees. Main attraction for BPO
outsourcing is lower costs. In uncertain economic
times (2000 to 2003), it also reduces corporations
headcount, hence liability upon job termination. In
India, the West (USA & the Europe) has discovered
a huge pool of trained manpower willing and able
to do these tasks inexpensively.

Why Outsource?

Provide cost effective solution for
increasing volume and complexity
of business
Reduce operating expenses while
maintaining service and quality
levels
Pilot outsourcing concept for AIG
enterprise

What to Outsource?

Backroom support for insurance operations
such as data entry, mail management, post-
sales servicing, indexing of documents,
licensing & contracting

Criteria for BPO Site:
ICT Infrastructure
Financials
Strategy
Business Process Capacity


The Data
A new way to leverage skills and markets

Win-win situation: for DCs and ICs: productivity,
competitiveness, higher employment, faster economic
growth
every dollar of outsourcing creates $1-45-1-47 of value
of which the US captures $1.12-1.15 while India gets
only 33 cents

Outsourcing industry: to exceed $1 trillion by 2006

Total savings from global outsourcing:
to grow from $6.7 bn (2003) to $20.9 bn (2008)

Developing countries gains: $60 billion in ITES by 2008


Outsourcing: North-South issue? Hardly
More North-North trade-68% of trade
North America, largest market: 60% of total
Canada, largest exporter of private services to US

Job displacement, unfounded:
Net creation of 22 million new jobs in the US (from 2000-
2010); shortage of 10 million in 2010

Estimates for outsourcing: job creation: 317,000 net new
jobs by 2008 in the US

2003: 98% of total contract value for outsourced business
process service delivery in the US is done domestically
(only 2% off-shored)

India accounted for only 1% of total US imports of
private services (of which, 2% - business services)

Worldwide BPO Spending by
Region 2002-2006
Region 2002 2006 2002-2006
(CAGR %)
America 484,732 647,427 7.5
EMEA 171,303 237,390 8.5
Asia/Pacific 117,622 194,228 13
World wide 773,657 1.079.054 8.6
The Benefits
Contributes to the MDGs:
gender empowerment, poverty reduction, access to
technology

Has positive spill-over effects:
gains from additional consumption, skills and technology
transfer, secondary employment

Strengthens local capacity:
through ToT and technological developments
could assist DCs in building their own industries
Indian example: TCS, Infosys, Wipro Technologies

Expands markets:
through inter-modal linkages, especially with Mode 4
could benefit late entrants, esp. if trend continues

Contributes to the MDGs:
gender empowerment, poverty reduction, access to
technology

Has positive spill-over effects:
gains from additional consumption, skills and technology
transfer, secondary employment

Strengthens local capacity:
through ToT and technological developments
could assist DCs in building their own industries
Indian example: TCS, Infosys, Wipro Technologies

Expands markets:
through inter-modal linkages, especially with Mode 4
could benefit late entrants, esp. if trend continues

Increased sales and profits
Reduced costs per sale
Maximum phone productivity
Increased number of appointments
Increased customer base
Increased lead generation
Higher number of qualified leads
Higher number of closed sales
Better customer retention
More immediate feedback
Better results through test marketing
Increased local, regional, or national market share
Gains for Outsourcing Companies
Strategic decision / competitive necessity
Lower labor costs
Economies of scale
Round the clock operations / time zone
Access to skills (including language skills)
Legal and regulatory framework
Quality
Structure of existing corporate network
Global R&D teams working in tandem

The Activities
Lower end: customer contact centers, data entry
operations, telemarketing, basic technical
support

Middle: processing of financial transactions
(credit-card billing, insurance claims)

Higher end: professional services such as
research and development, accounting,
engineering and architechtural design services,
investment analysis, medical diagnostics


Developing Country
Beneficiaries
India: a wide known success story
18 percent share of the global market
Growth rate: 54% in 2003-04
Total export revenues to touch US$ 57 bn by
2008; US$ 148 bn by 2012
Employment to rise from 110,000 (2003) to 2.7 mn
by 2012
Philippines, China, Malaysia, Vietnam, Bangladesh,
S.Africa, Ghana, Senegal, Kenya, Jamaica,
Mauritius, Nicaragua, Barbados, Mexico, Brazil.
Others:
Hungary, Czech Rep.

Programmers Wages
(Average Wage/year (US$000)
2.4
5.88
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Vietnam Experience
Nortel, Cisco, IBM, Hewlett-Packard, British Petroleum,
Sony, Fuji, TCS, now in Vietnam

IT training specialists (NIIT, Aptech, Oracle) and Royal
Melbourne Institute of Technology, providing training

Attractions:
cost advantage
strong mathematical skills ( focus of educational system)
knowledge of French and English

Government: providing incentives to IT sector (tax
holidays, infrastructure development, education)

Vietnamese diaspora: key driver of IT industry

Ghana Experience

Government: pro-active role: campaign, promotion
for major US BPO players to set-up presence

Attractions:
stable political environment
english-speaking workforce; high literacy

Role of Diaspora population:
setting-up their own companies in Ghana; some
in partnership with foreign investors
knowledge of foreign culture and their networks


Success Stories: Summary

Competitive cost
Language, education, skills
also enables moving up the value chain
Ability to develop global networks
Adequate and reliable infrastructure
Government role: infrastructure, education, various
incentives, marketing, political stability, regulatory
framework (e.g., security of data and IPR
protection)
relates to long-term prospects of doing business
Role of Diaspora population
Cultural and relational proximity and trust

The Challenges to Overcome
Lack: infrastructure, trained HR, local market- base

Difficulty in gaining confidence of outsourcing companies:
regulatory framework still under development
political instability and governance issues

Lack of coverage for liability and risk
putting in place a strong risk-control framework

Potential erosion of competitive advantage
through new laws and regulations (e.g., restrictions on
transfer of personal data)

Growing protectionism in outsourcing countries

Intermodal Linkages
Mode 1-Mode 4:
need for professionals to travel for negotiating
contracts, trouble shooting, maintenance, training,
supervision, monitoring etc.

Mode 1-Mode 3:
Indian companies benefiting from outsourcing now
have established their own commercial presence in
major markets:
480 Indian companies in UK; India, now 8
th
largest
investor in the UK;
have also established operations in China,
Philippines, etc. to leverage specific skills and take
advantage of lower costs.

Liberalization: The Targeted
Approach
Full MA and NT commitments on positive list of service
sectors at aggregate (2 digit) level:
ensures a reasonable degree of coverage to include
large part of current IT & BPO trade;
is focused on the sectors in question;
allows for gradual liberalization (bearing in mind
regulatory and institution constraints in
developing countries);
allows for more predictability;
But:
may still miss out on a number of services
currently being traded;
may not cover other new services to be traded in
the future;

UNCTAD Expert Meeting
Professional Services & New and Dynamic
Sectors
Analyzing trade opportunities arising from global
outsourcing;

Identifying best practices to strengthen domestic
capacity and increase participation in international
trade;

Exploiting existing frameworks for cooperation and
coordination among international organisations;

For UNCTAD, to intensify its capacity-building
efforts for developing countries, esp. LDCs;

For developing countries, to build necessary
infrastructure and domestic capacity;
Effective implementation of Article IV, Telecom
Annex;

For WTO Members, to address issues of market
access in the ongoing GATS negotiations;

Cooperative measures through RTAs.

Golden Rule for BPO Success
The countrys software services and business process
outsourcing (BPO) companies can realize $60 billion in
export revenues by 2010 if they reduce operational
costs and improve profitability, the National
Association of Software and Service Companies
(NASSCOM) has said.
India is now the leading destination, having captured
65 per cent and 46 per cent of the global offshore IT
and BPO markets respectively.
As the market leader, it is imperative that we continue
to set standards for the global industry. IT and BPO
centers in India must now provide additional benefits
such as speed, flexible operating models, innovation
and productivity enhancements, which can be
achieved by excelling in operations
To Sum Up.
Outsourcing is an inevitable trend in the global
economy
with potentially huge gains (for both developed
and developing countries).
Benefits are not automatic
but require targeted action
at national level (policies to support
outsourcing, e.g. create infrastructure and
educational base);
at international level (TA for national policies
and negotiating outcomes to curb
protectionism).

Top 50 Global Outsourcing
Locations
1. India
2. China
3. Malaysia
4. Thailand
5. Brazil
6. Indonesia
7. Chile
8. Philippines
9. Bulgaria
10. Mexico
11. Singapore
12. Slovakia
13. Egypt
14. Jordan
15. Estonia
16. Czech Republic
17. Latvia

18. Poland
19. Vietnam
20. United Arab Emirates
21. US
22. Uruguay
23. Argentina
24. Hungary
25. Mauritius
26. Tunisia
27. Ghana
28. Lithuania
29. Sri Lanka
30. Pakistan
31. South Africa
32. Jamaica
33. Romania
34. Costa Rica
35. Canada
36. Morocco
37. Russia
38. Israel
39. Senegal
40. Germany
41. Panama
42. UK
43. Spain
44. New Zealand
45. Australia
46. Portugal
47. Ukraine
48. France
49. Turkey
50. Ireland


Observation

The road ahead of the budding BPO industry, especially in
India, remains long. While successes such as Spectra mind,
Daksh and possibly MphasiS have propelled this nascent
industrial sector to new heights, the divestment results of
BPO investment trail behind other sectors in the overall
Asian private equity investment landscape.
Between 2002 and June 2005, there are 69 divestment
results that fall into the top quartile IRR, ranging from
1,648% to 81%. Within this range, technology companies
command the lion's share, in taking up 42% or 29 exit
records, followed by consumer goods with 14 exits,
whereas BPO claims only two.
India's BPO companies also face challenges from both
China and Philippines which are aggressively positioning
themselves for a bigger portion of the BPO pie. TH Lee
Putnam Ventures' acquisition of the Philippines-based SPI
Technologies last year is one of the very first signals that
this cannot be ignored.


Outsourcing to India

India's New Faces of Outsourcing

TAKEAWAY: A generation of Indian workers is
redefining the way the corporate world sees
outsourcing. What began as a method for achieving
cheap call-center and back-office work has now
morphed into a global workforce that is qualified for
higher-level management and strategy jobs. These
Indian standouts have raised the bar and forced their
U.S. counterparts to see them in a whole new light. As
these Indians take on more responsibilities, they are
changing the corporate culture of business. This article
looks closely at how two Northern Virginia companies
are learning to straddle the cultures as they rely more
and more on their offices in Pune, India. Indian workers
in Pune have had to adapt to any number of Western
culture additions everything from calmer wall colors
in the office to nightshifts to U.S. holidays. U.S. offices
are being affected by the Indian culture of their partners
as well, especially as Indian developers are becoming
more assertive about things like time off for Indian
holidays.
Services Globalisation: The New Paradigm


Digitization and Telecommunication enabling this
reality
For more than three months, the possible sale of Baring
Private Equity Partners (Indias) ('Baring India') shares in
MphasiS has kept interested parties spell-bound. Since
May, the number of investors queuing to take up Baring
India's 36% stake in MphasiS has been growing. While
Singapore's Business Times described its government
investment arm, Temasek Holdings, as "set to be main
investor" in MphasiS, the Malaysian government's
Khazanah National Bhd was also named as an institution
vying for the same assets.
In a statement released through the National Stock
Exchange of India, Mr. Rahul Bhasin, Managing Partner
of Baring India confirmed that "there has been a lot of
unsolicited interest in the company (MphasiS) at
significant premiums". Investors' thirst for MphasiS'
shares and their willingness to pay a high entry price for
access to MphasiS' boardroom has again placed business
process outsourcing ('BPO') in the limelight.
BPO Visits

Being Recognized

When Wipro Technologies acquired Spectra mind e-
Services Private Ltd. in July 2002, it was the first
major recognition of the future prospects of India's
nascent BPO industry. Wipro, the country's largest
technology company valued Spectra mind at
US$126 million, which represented a 2.8 multiple
on its forecast revenue for the fiscal year ended
March 2003. For Chrys Capital, which parked a
total of US$10.2 million in the budding BPO
company back in October 2001 for a 41.3% equity
stake, the investment yielded a 5.9-fold return in
just 18 months.

Growth Trends in India


2,400
565
4,250
930
7,100
1,495
11,300
2,900
16,380
3,600
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
1999-2000 2000-2001 2001-2002 2002-2003 2003-2004
Rs. Crore
US$ Million

Growth Trends in India





Captive service providers
Quality of services,
eliverability, Confidentiality
GE, e-Serve, WNS, Dell
Process specialists
Knowledge of process ADP,
Exhult, Convergys, Hewitt
IT outsourcing companies
Specific verticals and outsourcing
skills ACS, EDS, CSC
Pure BPO vendors
Cost advantage and skilled
labour Wipro Spectramind,
IBM-Daksh, GTL
Software companies
Cost advantage and process
knowledge Infosys, HCL,
Mphasis, Satyam
Consultants
Financial and accounting background
Accenture, E&Y, PwC
BPO
Key BPO Players in India

Growth Trends in India



India Presence in BPO Sector



Content Development/
Digitisation/ Transcription
-Data entry
-Data conversion
-Medical transcription

BPO
- Transfer of business
process to external service
provider
- Enabled by IT and
Telecom
Customer Relation
Management
-Order processing/customer
fulfillment
-Customer support
-Collection follow-up
-Telemarketing
Finance and Accounting
-Billing
-Receivables reconciliation
-Creditors reconciliation
-Financial accounting
Transaction processing
-Tax processing
-Claims processing
-Cheque processing


India A Preferred BPO Destination
People attractiveness
Quality
Cost
Type of skills
English language
High
Low
Low
High
Location attractiveness
Infrastructure
Communications
Other basic
infrastructure
Country risks/FDI
incentives
Attractive incentive
Political environment
Time zone attractiveness
Mexico
China
India
UK
Australia
Singapore
Ireland
Size of circle indicates quality
of knowledge workers
Philippines

Being Recognized


When Wipro Technologies acquired Spectra mind e-
Services Private Ltd. in July 2002, it was the first major
recognition of the future prospects of India's nascent
BPO industry. Wipro, the country's largest technology
company valued Spectra mind at US$126 million,
which represented a 2.8 multiple on its forecast
revenue for the fiscal year ended March 2003. For
Chrys Capital, which parked a total of US$10.2 million
in the budding BPO company back in October 2001 for
a 41.3% equity stake, the investment yielded a 5.9-fold
return in just 18 months.





In 2004, the Indian BPO industry was ushered into
the global limelight when a number of
momentous transactions were completed during
the year. IBM brought Daksh e-Services
('Daksh') onto the information technology
giant's playing field when it acquired the BPO
company for US$170 million. The sale of Daksh
to IBM also handsomely rewarded its investors,
including Actis (then known as CDC Capital
Partners) and General Atlantic Partners.
Actis achieved an internal rate of return of 79%
while General Atlantic Partners made a 2-fold
return from its US$21 million of invested capital
for a holding period of less than 18 months.




In August last year, India's BPO attained a new
milestone when Tata Consultancy Services, backed
by GE Capital, was listed on the Bombay and
National Stock Exchanges in India. It was the largest
initial public offering for the country, having raised
over US$1 billion. More importantly, the debut of
this giant BPO firm has set a new benchmark for
others in the country. Four months later, G.E.
Capital raised its glass to another successful
transaction when its information services
outsourcing arm, now known as GECIS, was sold to
General Atlantic Partners and Oak Hill Capital
Partners. The two private equity houses paid a total
of US$550 million to assume a 60% equity position
in GECIS, placing the company's value at US$833.3
million. The final transaction value for Baring
India's Mphasis shares will be another yardstick of
investors' assessment of the BPO future.





Once a cottage industry, technological advancement
has facilitated rapid development for Asian BPO
companies allowing them to become an industrial
sector keenly courted by venture investors. Of the
29 BPO investments known to have been completed
in India between January 2002 and June 2005, over
55% of them have been participated in by foreign
private equity houses.
India is the undisputed BPO leader in Asia
commanding virtually the entire market share.
Worldwide, India ranks number one among seven
leading BPO markets. It is expected to clock up a
compound annual growth rate ('CAGR') of 45%
between now and 2008. By the end of the year,
India's BPO market is expected to reach a staggering
US$6.5 billion.


Factors of Success






With India's recognized skills in providing
financial services as well as a vast low cost
English speaking work force, its position in the
global BPO market is unlikely to be challenged
in the near future. According to research
undertaken by IDC, the demand for BPO
services in the financial services sector will be
the highest, at 40%, followed by the healthcare
segment. These, together with its rather
advanced information technology
infrastructure have become a powerful formula
for success in the BPO domain, leaving little
room for its rivals to survive.




But BPO companies in India are not sitting in their laurels. They
have been assiduously fortifying their own assets in order to
sustain their competitive edge.
Warburg Pincus' WNS has acquired two companies, the UK-
based Town & Country Assistance and domestic-based Claims
BPO. The acquisitions enabled WNS to diversify its services
into insurance claims management as well as into the health
claims area.
Earlier in the year, MphasiS spread its tentacles into the
healthcare space when it acquired El Dorado Computing, a
healthcare insurance software solution company. ICICI
Venture Funds Management's ICICI One Source has continued
an aggressive acquisition trail. Between May 2002 and April
this year, ICICI One Source has mobilized no less than US$90
million in bringing five BPO companies into its fold. The
market is abuzz with speculation that the outsourcing
company will soon be offering its shares to public investors in
order to raise further capital.
The non-organic growth undertaken by India's BPO companies
are in fact replicating MphasiS' recipe of success.

Strengthening Assets






From a software company known as BFL Software
back in 1995, it has transformed itself to become one
of the largest BPO companies in India. Baring India
was its earliest private equity investor, providing an
estimated US$10 million and at that time, held a
52% equity stake. BFL Software grew through
acquisitions. In 2000, BFL Software bought the
California-based MphasiS which was in interactive
architecture e-solutions businesses, and began to
embark on IT-enabled and BPO services. In 2003, it
consolidated its position in India's BPO space in
acquiring MsourcE, a subsidiary of MphasiS. By
then MphasiS BFL Software was known as MphasiS.
Today, Baring India, in addition to being a 36%
shareholder in MphasiS, is a holder of substantial
minority stake in MphasiS BPO India.





The outsourcing history of India is one of phenomenal
growth in a very short span of time. The idea of
outsourcing has its roots in the 'competitive advantage'
theory propagated by Adam Smith in his book 'The
Wealth of Nations' which was published in 1776. Over
the years, the meaning of the term 'outsourcing' has
undergone a sea-change. What started off as the shifting
of manufacturing to countries providing cheap labor
during the Industrial Revolution, has taken on a new
connotation in today's scenario. In a world where IT has
become the backbone of businesses worldwide,
'outsourcing' is the process through which one company
hands over part of its work to another company, making
it responsible for the design and implementation of the
business process under strict guidelines regarding
requirements and specifications from the outsourcing
company.

How it started?






This process is beneficial to both the outsourcing company and
the service provider, as enables the outsourcer to reduce costs
and increase quality in non core areas of business and utilize
his expertise and competencies to the maximum. And now we
can see the benefit to the service companies in India as they
mature, prosper and build core capabilities beyond what
would generally be possible by the outsourcing company.
Since the onset of globalization in India during the early 1990s,
successive Indian governments have pursued programs of
economic reform committed to liberalization and privatization.
Till 1994, the Indian telecom sector was under direct
governmental control and the state owned units enjoyed a
monopoly in the market. In 1994, the government announced a
policy under which the sector was liberalized and private
participation was encouraged. The New Telecom Policy of
1999 brought in further changes with the introduction of IP
telephony and ended the state monopoly on international
calling facilities.




This brought about a drastic reduction and this heralded the golden
era for the ITES/BPO industry and ushered in a slew of
inbound/outbound call centers and data processing centers.
Although the IT industry in India has existed since the early
1980s, it was the early and mid 1990s that saw the emergence of
outsourcing. One of the first outsourced services was medical
transcription, but outsourcing of business processes like data
processing, billing, and customer support began towards the end
of the 1990s when MNCs established wholly owned subsidiaries
which catered to the process off-shoring requirements of their
parent companies. Some of the earliest players in the Indian
market were American Express, GE Capital and British Airways.
Since the onset of globalization in India during the early 1990s,
successive Indian governments have pursued programs of
economic reform committed to liberalization and privatization.
Till 1994, the Indian telecom sector was under direct
governmental control and the state owned units enjoyed a
monopoly in the market. In 1994, the government announced a
policy under which the sector was liberalized and private
participation was encouraged.





The New Telecom Policy of 1999 brought in further changes
with the introduction of IP telephony and ended the state
monopoly on international calling facilities. This brought
about a drastic reduction and this heralded the golden
era for the ITES/BPO industry and ushered in a slew of
inbound/outbound call centers and data processing
centers. Although the IT industry in India has existed
since the early 1980s, it was the early and mid 1990s that
saw the emergence of outsourcing. One of the first
outsourced services was medical transcription, but
outsourcing of business processes like data processing,
billing, and customer support began towards the end of
the 1990s when MNCs established wholly owned
subsidiaries which catered to the process off-shoring
requirements of their parent companies. Some of the
earliest players in the Indian market were American
Express, GE Capital and British Airways.




The ITES or BPO industry is a young and nascent sector in India and
has been in existence for a little more than five years. Despite its
recent arrival on the Indian scene, the industry has grown
phenomenally and has now become a very important part of the
export-oriented IT software and services environment. It initially
began as an activity confined to multinational companies, but
today it has developed into a broad based business platform
backed by leading Indian IT software and services organizations
and other third party service providers. The ITES/BPO market
expanded its base with the entry of Indian IT companies and the
ITES market of the present day is characterized by the existence of
these IT giants who are able to leverage their broad skill-sets and
global clientele to offer a wide spectrum of services. The spectrum
of services offered by Indian companies has evolved substantially
from its humble beginnings. Today, Indian companies are offering
a variety of outsourced services ranging from customer care,
transcription, billing services and database marketing, to Web
sales/marketing, accounting, tax processing, transaction
document management, telesales/telemarketing, HR hiring and
biotech research.




Looking at the success of India's IT/software industry, the central
government identified ITES/BPO as a key contributor to
economic growth prioritized the attraction of FDI in this segment
by establishing 'Software Technology Parks' and 'Export
Enterprise Zones'. Benefits like tax-holidays generally enjoyed by
the software industry were also made available to the ITES/BPO
sector. The National Telecom Policy (NTP) introduced in 1999 and
the deregulation of the telecom industry opened up national, long
distance, and international connectivity to competition. The
governments of various states also provide assistance to
companies to overcome the recruitment, retention, and training
challenges in order to attract investments to their region. The
National Association of Software and Service Companies
(NASSCOM) had created platforms for the dissemination of
knowledge and research in the industry through its survey and
conferences. NASSCOM acts as an 'advisor, consultant and
coordinating body' for the ITES/BPO industry and liaisons
between the central and state government committees and the
industry. The ardent advocacy of the ITES/BPO industry has led
to the inclusion of call centers in the 'Business Auxiliary Services'
segment, thereby ensuring exemption from service tax under the
Finance Bill of 2003.




These measures have led to a steady inflow of investments
by large foreign companies such as Reuters, for
establishing large captive ITES/BPO facilities across
India. Moreover, the existing ITES/BPO operations of
major multi-nationals are also being ramped up to cater
to the ever increasing demand for better and speedier
service. Almost all of India's top ITES/BPO giants have
announced some form of expansion and are in the
process of hiring manpower to fill the additional seats.
India's competitive advantage lies in its ability to provide
huge cost savings thereby enabling productivity gains
and this has given India an edge in the global ITES/BPO
marketplace. NASSCOM studies pinpoint the following
factors as the major reasons behind India's success in this
industry.




Abundant, skilled, English-speaking manpower, which
is being harnessed even by ITES hubs such as
Singapore and Ireland.
Improving telecom and other infrastructure which is
at par with global standards.
Strong quality orientation among players and their
focus on measuring and monitoring quality targets.
Fast turnaround times and the ability to offer 24x7
services based on the country's unique geographic
location that allows for leveraging time zone
differences.
Proactive and positive policy environment which
encourages ITES/BPO investments and simplifies
rules and procedures.
A friendly tax structure, which places the ITES/BPO
industry on par with IT services companies.




Outsourcing to India offers significant improvements in
quality and productivity for overseas companies on
crucial parameters such as number of correct
transactions/number of total transactions; total
satisfaction factor; number of transactions/hour and
average speed of answer. Surveys by NASSCOM also
revealed that Indian companies are better focused on
maintaining quality and performance standards. Indian
ITES/BPO companies are on an ascending curve as far as
the quality standards are concerned. Organizations that
have achieved ISO 9000 certification are migrating to the
ISO 9000:2000 standards and companies on the CMM
framework are realigning themselves to the CMMI
model. Apart from investing in upgrading their CRM
and ERP initiatives, many Indian ITES companies are
beginning to acknowledge the COPC certifications for
quality and are working towards achieving COPC
licenses.




Despite being a fledgling in the global ITES/BPO
industry, the Indian ITES industry recorded a
growth rate in excess of 50% in 2002-03. Industry
experts consider this a positive indication of the
times to come and a look at the ranking and the
revenue and headcount statistics show the potential
of the industry. The global ITES/BPO industry was
valued at around US$ 773 billion during 2002 and
according to estimates by the International Data
Corporation worldwide, it is expected to grow at a
Compounded Annual Growth Rate (CAGR) of 9%
during the period 2002-2006. NASSCOM lists the
major indicators of the high growth potential of the
ITES/BPO industry in India as the following:




During 2003-04, the ITES-BPO segment is estimated to have
achieved a 54 percent growth in revenues as compared to
the previous year.
ITES exports accounted for US$ 3.6 billion in revenues, up
from US$ 2.5 billion in 2002-03.
The ITES-BPO segment also proved to be a major
opportunity for job seekers, creating employment for
around 74,400 additional personnel in India during 2003-04.
The number of Indians working for this sector jumped to
245,500 by March, 2004.
By the year 2008, the segment is expected to employ over
1.1 million Indians, according to studies conducted by
NASSCOM and leading business Intelligence Company,
McKinsey & Co. Market research shows that in terms of job
creation, the ITES-BPO industry is growing at over 50
percent. Surveys of the Indian ITES/BPO industry in 2004
expected it to follow the trends given:




Indian services companies are opening business process
outsourcing (BPO) operations in rural villages as a way of
keeping down costs for customers while bridging the
digital divide in the country.
With the growth of the IT industry some Indian cities have
seen greater prosperity but so far this has passed the rural
areas by.
As part of an attempt to address this two BPO centers have
been set up in villages and a third is being developed. The
three centers will employ 250 people, and there are plans
for more sites in the pipeline. Technology is changing rural
India.
Verghese Jacob, lead partner at the Byrraju Foundation,
which is masterminding the operation, said: "The pace of
rural growth has been much slower than urban growth."




BPO Operations Head Into Rural
India







Today, India is undoubtedly the most favored IT/BPO
destination of the world. This raises the question why most of
the big MNCs are interested in outsourcing their operations to
Boo's in India. The answer is very simple- India is home to
large and skilled human resources. India has inherent
strengths, which have made it a major success as an
outsourcing destination. India produces the largest number of
graduates in the world. The name of India has become
synonymous with that of Boo's and IT industry hence the
name BPO India.
Besides being technically sound, the work force is proficient in
English and work at lower wages in comparison to other
developed countries of the world. India also has a distinct
advantage of being in a different time zone that gives it
flexibility in working hours. All these factors make the Indian
Boo's more efficient and cost effective. In order to meet the
growing international demand for lucrative, customer-
interaction centers, many organizations worldwide are looking
to BPO India.

BPO Advantage India






The Indian advantage lies primarily in the educational and
technical qualifications of the personnel, who are often more
qualified than the people working in the parent locations. A
survey conducted in 2002 by NASSCOM (National Association
of Software and Service Companies) showed that an India
based ITES-BPO center in the banking and financial service
sector, performs better than a UK or US based facility on
significant factors such as the number of correct
transactions/total umber of transactions, total satisfaction
factor, number of transactions per hour and the average speed
of answers.
The ITES-BPO industries are most sensitive to incorporating
internationally accepted standards of quality assurance. The
NASSCOM survey also found that 50 percent of Indian
companies have implemented varied levels of ISO (The
International Organization for Standardization, which
conceives sets of quality management standards) such as ISO
9002, ISO 9001, ISO 9001:2000, and ISO 9001:2001.

The Indian Advantage






The TESCO Hindustan
Service Centre is the offshore
support and IT development
centre of the UK supermarket
giant. TESCO was among the
first major international
retailers to have a fully
owned support-centre in
India.

The centre - in the Whitefield
district of Bangalore - went
live in May 2004 and
currently employs more than
1,900 staff. It supports,
among other things, TESCO's
People soft systems,
production Unix servers,
RFID and wireless systems.




By virtue of certain advantages India has been able to maintain its
supremacy over its rivals in the BPO industry but there are a
number of other countries, which can give India run for its
money in Business Process Outsourcing. Some of the
prominent competitors of BPO India are China, Philippines,
Mexico, Canada, and Malaysia. The Philippines advantage,
besides skilled and English educated work force and good
telecom infrastructure, is familiarity with American work
culture and Spanish language.
Hence India still has the leading edge in the BPO industry, but it
should keep on improvising to maintain its stability. Therefore
India should be on its guard to maintain its position intact. If
India has to maintain its supremacy in BPO and its software
workforce, then BPO India has to learn Spanish, which is
spoken in more than 24 countries. With India already stamping
its superiority in the BPO sector with its knowledge of the
English language, it now needs just one other language that
will make the world its market, which is Spanish.

BPO Competitors of India






BPO India is one of the popular business practices in the
world's competitive environment. The Indian BPO
industry is constantly growing. According to India
Info line, the ITES-BPO segment recorded a growth of
59% in the year 2002 and touched US $2.3 billion in the
year 2003. However, along with the phenomenal
increase in BPO to India there has been a backlash
against outsourcing. The opposition and backlash is
coming mainly from developed countries that are
directly affected by outsourcing to India. Though this
anti-outsourcing movement is gaining momentum but
the pace at which the trend of outsourcing is
continuing to India, this is going to double in a couple
of years. It is because of numerous advantages that
India enjoys in comparison to other countries.


BPO Indian Backlash






Fame comes at a price. And being the fastest-growing
and most cost-competitive outsourcing destination
could sometimes elicit such negative responses. The
reality that India is fast emerging as the back office
of the world and our BPO industry is estimated to
grow at a rate of 65 per cent per year is not taken too
well by most of the developed countries of the
world, from where these jobs are coming to India.
Even as investments in the ITES-BPO industry are
increasing by the day, banners and slogans
demanding a ban on outsourcing of jobs to India are
increasingly noticeable.





Some states in the US have tried to legislate banning
the transfer of state data processing contracts to
developing nations. Despite the bill being passed by
the US senate barring the shifting of BPO work to
India, the BPO supporters lobby in the US is
working at changing the mindset and perceptions.
In the UK, three of the country's biggest trade
unions have come together to fight the loss of jobs to
India, especially British Telecom's move to open a
huge call center in Bangalore. These unions fear that
the competitors of BT will emulate this act. German
protesters have been running an unrelenting
political campaign against the German green-card
scheme for a while now.





But one thing is sure. The trend of BPO is likely to
continue under all circumstances, because firms
have become habitual of moving the BPO work to
India, it is now like an addiction, which they can't
do without. The only thing that needs to be done
now is resolving of cultural differences, which, crop
up during the cross-border shifting of BPO work.
Indian Boo's have been in great demand because of
the low-operational costs here and also because
most of our workforce is well educated and has had
a university education. Indian BPO industry is
driving at the top gear and is sure to maintain that
numero uno position in the coming years too.





Outsourcing to India is now more about high quality rather
than cost. Indian companies are fast scaling up to match or
surpass international quality standards and are ensuring
that they stay ahead through stable quality systems and
continuous quality improvement.

The Indian BPO industry, which previously relied on its
cost effectiveness to attract customers, is now under an
entirely different dictatorship. Quality is the new buzzword
and is dominating business processes and services like
never before. Ninety percent of ITES-BPO companies now
have specialized quality departments that are responsible
for ensuring accurate, reliable services to their customers.
The spotlight in Indian centers is now focused on ensuring
standards of quality that are at par with, if not superior to
their counterparts abroad.

Conditions and Improvement
of Economy






According to studies conducted by NASSCOM and leading
business Intelligence Company, McKinsey & Co. the Indian
IT/BPO segment is expected to employ over 1.1 million
Indians by the year 2008. Market research shows that in
terms of job creation, the ITES-BPO industry is growing at
over 50 percent. In the financial year 2003-2004, ITES-BPO
companies were the largest recruiters in the IT/ITES sector,
adding a total of about 70,000 jobs.

An estimated 70,000 new Jobs expected in 2005 in the field
pf ITES. Plus there will be additional hiring to replace
industry attrition that is around 25%. On the other hand
BPO and outsourcing services would generate around 1,
25,000 new Jobs in 2005. McKinsey & Co. predicts global
market for IT-enabled services to be over $140 billion by
2008. In that the opportunity for India will be around $ 17
Billion.


Growth of Indian BPO
Industry







Outsourcing Market Growth
Rate and Share, 2004






Indian ITES-BPO industry is world class According to findings of
a NASSCOM & QAI survey the range of end user satisfaction
ratings for Indian BPO organizations is 82 100%.

NEW DELHI: According to NASSCOM, the Indian ITES-BPO
industry is world class in customer satisfaction, quality, and
people satisfaction. But to sustain its growth and performance,
it needs to continue its focus on processes and people. The
industry now needs to focus on people retention and
becoming more efficient. Currently, the range of end user
satisfaction ratings for Indian BPO organizations is 82 percent-
100 percent.
This was the finding of the NASSCOM & QAI survey of the
organizations in the ITES-BPO space (both senior and middle-
level management), on key challenges faced by their
organizations and the best practices found to be useful in
tackling them.
The range of Fatal Accuracy percentages for Indian BPO
organizations is 98-100 percent. This is better than most
regions across the world, except North America.




Indian BPO workers happier than IT pros with over 45% growth
in the number of employees in 2003-04, overall employee satisfaction,
improved 9% over last year, revealed a DQ-IDC study.

NEW DELHI: Staggering growth is often a recipe for employee
dissatisfaction, as the IT industry has seen in 2003-04. But the
$4 billion BPO services industry in India has managed to defy
this equation. Despite over 45 percent growth in the number of
employees in India's BPO industry in 2003-04, overall
employee satisfaction actually improved in 2004. The
satisfaction score rose 9 percent over last year, in the annual
Dataquest-IDC BPO E-Sat (Employee Satisfaction) Survey,
2004. Daksh services emerged as the Top Employer in the
survey this year, as opposed to its fifth position last year.
There is often disconnecting between salary and satisfaction
with salary. Daksh emerges at the top of the pile in terms of
employees' cost to company and yet, ranks quite low on
employee satisfaction with salaries. And despite this, the
employees show a very high overall satisfaction level.








One of the many
giant buildings on
the road out to
Bangalore's
Electronic City.




According to NASSCOM, the Indian ITES-BPO industry is
entering Phase II of evolution (ie., moving from
potential to performance). Indian ITES-BPO
organizations have now started looking beyond
contract fulfillment to identify opportunities for
delivering high quality service to end-customers. They
are aligning internal systems to ensure high customer
satisfaction. These steps will serve as the building
blocks for future success.

Successful BPO companies understood the need to
invest in quality and consistency at early stages. Six
Sigma, COPC and ISO were the preferred models.

According to the survey, attracting and retaining people
is the key process challenge cutting across all
management levels.




The future for the IT/BP industry holds bright. It is estimated that
56% of the BPO market could be India's by the year 2006 with
the demand for BPO services increasing at an annual growth
rate of 50 per cent during 2004-06. The pace at which the
Indian BPO market is increasing is tremendous. The market of
BPO in India is likely to be around $9-12 billion by the year
2006 and will employ around 0.4 million people. The BPO
market is ready to fire up and India Inc is all geared for this
big opportunity.
This is really great news for India Inc since we have to tackle
the BPO backlash as well. Though there are chances of this
party being spoiled by the US led backlash but then also India
is sure to have a large share of the BPO market. This will go a
long way in making India the BPO super power of the world.
If the backlash stays on for sometime, then may be India could
only have a 42% share of the market instead of 56%. Though it
is a reality that companies outsourcing their business
operations to Indian Boo's have been saving a lot of money
and also saving jobs of their own countrymen.

Future Prospects






Now fast forward this situation to year 2014. The Indian BPO
industry is an enormous success. It has grown at a
compounded annual rate of 50 per cent and now employs 6.5
million people. If you include people who started life in the
BPO industry and have moved on to do other things
(assuming an annual attrition rate of 30 per cent for the BPO
industry as a whole), you will have another 6 million people.
This means that there will be over 12 million individuals in our
country who have worked in the BPO industry, i.e. have been
through the rigorous recruitment tests, extensive training, are
accustomed to working in a very high-quality environment,
don't consider air-conditioning a luxury, have a very strong
work ethic and expect similar professionalism from their
colleagues as a matter of course, are used to satisfying very
demanding customers, and delivering quality that is second to
none in the world.
These will be the Indians who have acquired global skills
without having to migrate to the West.

Indian BPO industry --10 years later
(Year 2014)







Notwithstanding some challenges, India's IT-BPO
exports can reach $80 billion by 2010, according to TCS
chief, Ramadorai, and Texas Pacific's Vivek Paul.

Moreover, this high rate of growth in the Indian IT-BPO
sector is expected to continue despite threats to its labor
cost advantage from rising wages. However, it would be
important to focus on education initiatives and
innovation to meet these and other challenges. And, for
this, there needs to be an active industry-academia-
government collaboration.

Great Times Ahead For Indian IT-
BPO Sector











Wipro's BPO site on
the edge of Pune,
which is the place of
work for 8,000 staff.




And size really does matter, "BPO saw a further flight to
scale this year," said Dataquest Group president,
Prasanto K Roy. "The larger companies have shown not
just higher growth rates but have also managed to keep
employees happier." The five largest companies in the
survey averaged a satisfaction score of 85, versus the
industry average of 81, while the smaller companies
stayed in the 70s. Roy added that unlike in the IT
industry, money is a huge motivator in BPO. "Salaries
replacing higher education as the top reason for leaving a
company serves as a reminder of the trend."

The BPO Employee Satisfaction Survey 2004 covered the
spectrum of the Indian BPO industry. The information in
the survey was captured through face-to-face interviews
with employees of participating companies.





Indian BPO industry's employee satisfaction
rises 9% even as employee base swells 45%.
"Salary" becomes the top reason for attrition
(replacing "higher education").
Work timings and commute time are the
top stress factors.
Daksh Tops Employer Satisfaction.
BPO Agents continue to be happier than IT
pro.

Highlights of the survey:




Signs like this show
the IT and BPO
market in Bangalore
is continuing to
expand. In terms of
the salaries offered -
8,500 rupees is
around 100, while
40,000 rupees is
about 460.




At present India is undoubtedly the BPO superpower of
the world but there are other strong competitors of
India who might spoil India's party. China is one such
country which can eat into the BPO share (market) of
India. But for the time being India is well ahead of
China because of some inherent advantages. India is
currently booming in the BPIO arena and has scored
over China to emerge as the top offshore destination
for Global businesses. In the 2004 offshore index, India
remains the star performer. It has once again captured
the top spot in outsourcing by a comfortable margin
due to its strong mix of low costs and noteworthy
depth in human resources. This fact was brought out in
a study conducted by AT Kearney, an international
consultancy agency.


India Ahead of China






India proved better than China on account of several
factors. The study pointed out that China lags
behind India in terms experience and other
important factors like IT and management
education, language skills, concerns about
intellectual property and overall country risk. As
per the "2004 Offshore Location Attractiveness
Index", which evaluated all countries based on
corporate surveys, offshore experience, labor and
government initiatives, Malaysia, Czech Republic
and Singapore make up the next three countries,
after India in outsourcing.
Outsourcing to China
Growing with China
BPO: China the biggest threat
to India
Despite the emergence of China and Philippines as
competitors in the business process outsourcing space,
India is well placed in terms of parameters like cost
savings, competency, technical infrastructure, language
and skill pool, according to an industry.
In the BPO field, China is perhaps the biggest challenge in
the future and the largest threat to India, and with the
largest population and fastest economic growth, the
Chinese have at least two advantages in the global
outsourcing market -- manufacturing and IT.
In terms of outsourcing options, India has a significant
cost savings model with multiple competencies in various
areas, an emerging technical infrastructure, highly rated
skill pool with English language and extensive cultural fit.
The main disadvantages of China are lack of good quality
record in software, whereas India has a better image as
quality supplier.
Chinese BPO Watch out, India
China is way behind India in the business of outsourced
services, but it has now started to catch up in a vast
curtained room in Xian in western China, rows of
dark, pony-tailed heads are silently bowed, fingers
moving quickly and expertly. They might be in any
Chinese factoryexcept that they are not assembling
shoes, nor soldering circuit boards, but sitting at
computer terminals processing medical-claim forms
from New York and car-loan applications from
Detroit and marking examinations for high-school
students in Melbourne, Australia. This is the future
of the global back office, says Michael Liu. Mr. Liu,
founder of Comp Pacific International, one of China's
few indigenous business-process outsourcing (BPO)
firms, returned after a decade in health-care IT in
America, determined to prove that China can do just
as well as India in outsourced services.
It's Cheaper in China
TAKEAWAY: When the IT outsourcing Indian giant
wobbles if it ever does experts generally expect that
China will be next in line to the off shoring crown.
Because of this, many CIOs are already eyeing China
for their IT projects, but the realities of outsourcing to
China currently offer a mixed bag of results. This article
takes a close and eye-opening look at what IT
outsourcing in China really demands by examining one
CIO's pursuit of a successful IT off shoring development
project in China. This CIO ultimately chose China over
India because of the greater cost savings offered, and a
lower turnover rate. This outsourcing effort had to
overcome many difficulties, including language barriers,
extreme time zone differences (12 hours) and a lack of
specific skills. There seems to be no question that
salability and value chain growth will take time to
develop in China, but many CIOs are finding it
worthwhile to invest that time now.
The Changing Face of China: China as an
Offshore Destination for IT and Business
Process Outsourcing

Long the world's factory, China is now becoming an
attractive offshore location for IT off shoring (ITO)
and business process off shoring (BPO). These
markets are expected to grow as the Chinese
government continues to entice foreign
multinationals. Similarly, Chinese-based ITO and
BPO providers are working to improve their
capabilities to capture business from multinationals
in the United States and Europe.
This paper highlights findings in A.T. Kearney's
most recent study of the ITO and BPO markets
served by China. It discusses China's strengths and
weaknesses, dispels some misperceptions, and
offers A.T. Kearney's perspective on how China is
doing in its efforts to become a preferred offshore
destination.
Chinas Advantages in
BPO:
Educated, skilled urban workforce
Low wages
Off-shore manufacturing and outsourcing
know-how already there
WTO entry and increased Chinese efforts at
free trade
Rapidly developing telecoms infrastructure
China government efforts to privatize and
modernize economy

China: BPO outsourcing
Significant market for BPO outsourcing
Labor pool & education system
Infrastructure
Cost-effectiveness
Improving legal system & IP /Data Security
Large domestic market
Foreign investment focus
Coopetition with India
Non-Latin market skills
Chinese/Japanese/Korean etc.

China facts and positioning
Worlds 2
nd
largest economy
Worlds fastest growing economy
GDP growth rate >7%
Middle of worlds largest economic center
(China-Japan-India)
Worlds largest talent pool (Most Ph.D.
candidates)
23% working age population
Already leads in manufacturing and is
transforming itself into a services-based
economy
$50 Billion-plus annual foreign investment
Domestic infrastructure investment &
improvement


China BPO services market: maintaining a
high-growth momentum in the past five
years




0
100
200
300
400
500
600
1999 2000 2001 2002 2003
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
Market
Size
Growth
Rate
In 100 Million Yuan




Size and Growth of China BPO Services
Market during 1999-2003. In 100 Million
Yuan.
1999 2000 2001 2002 2003
Market
Size
193.6 259.8 323.1 429.3 544
Growth
Rate
27.5% 34.2% 24% 32.9% 26.7%

Composition of China BPO
services market
2002 2003 Growth
Rate
Telecom 74.74 91.6 22.6%
Finance 80.31 98.58 22.7%
Government 43.62 62.81 44.0%
Manufacturing 55.05 69.89 27.0%
Energy 37.04 45.82 23.7%
Circulation 26.09 32.31 23.8%
Others 112.45 142.99 27.16%
Total 429.3 544 26.7%
Telecom
16.8%
Finance
18.2%
Government
11.5%
Manufacturing
12.8%
Energy
8.4%
Circulation
5.9%
Others
Forecast of future China BPO services
market
China Future IT Services and Outsourcing Market
Size and Growth Rate Forecast 2004-2008
In 100 Million Yuan
0
200
400
600
800
1000
1200
1400
1600
1800
2003 2004 2005 2006 2007 2008
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Market Size
Growth Rate




2003 2004 2005 2006 2007 2008
Total 544 673.1 842 .3 1054 .9 1296 .7 1567
Growth
Rate
26 .7% 23.7% 25.1% 25.2% 22.9% 20.8%
Composition of China Software Exportation
Japan, U.S. and Hong Kong are the main destinations for China software
exports, which account for 80.7% of the total software exports. In 2002, the
software export to Japan logged in a revenue of USD120.162 dollars
accounting for 52.28% of the total software exports, while to U.S., USD30.7799
million dollars13.39% and to Hong Kong, 34.5351 dollars15.03%.
Japan
53%
U.S.
13%
Others
15%
Taiwan
2%
Hong Kong
15%
South Korea
2%
China BPO Outsourcing Business is
Gradually Gaining an Edge to Compete
with Global Players
0
100
200
300
400
500
600
700
800
900
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
Domestic IT
Service
Int'l IT
Outsourcing
193
260
323
429
544
673
842
21
33
60
124
165
415
347
BPO Outsourcing Market
Growth Forecast
BPO Outsourcing---
Why China?
High availability of skilled resources
- Including reverse brain drain
Rapid and sustained economic growth
- Very large domestic market
Political stability and strong government support
Attractive after entry into WTO
-Enterprise globalization
Infrastructure --leapfrogs
Lower cost
- 20-40% cheaper than India
Improving legal system
Hong Kong---gateway for the uncertainty
Non-Latin language skills/resources
Customers
Satisfaction
Key: People, Process and
Technology
People: Growing Number of
Tech Talent
Outsourcing Practices by MNC
More and more MNCs set up offshore
development /service center in China
IBM, Motorla, SAP, Microsoft, NEC, BEA
Accenture , BearingPoint
Many more
More MNCs request IT/BPO service
for the market and customers in China
and Asian countries
Long term partnership and
Strategic alliance with Chinese ISV

Company
Technology
People and process
Long term
commitment
Strong company background and
reputation in the market
Leading technology ability
& industry know-how
Strong process and quality control
Including IP and security
Synergy of Outsourcing to China
Potential pitfalls
IP protection
Lack of experience in
managing large-scale
projects
Quality
Communication
Cultural differences
Capabilities and
services levels
How to avoid
Ample evaluation
prior to selection
Long term
investment
Minimizing risks
Vision and
leadership in
management
Setting performance
goals
Managing
relationship

Avoiding Potential Pitfalls
Key Take-away
China
Outsourcing to China brings more
business chances in China market
Ideal destination for IT/BPO outsourcing
People, process and technology are key
Right strategy and methodology to avoid
potential pitfalls
Outsourcing to China, growing with
China


Outsourcing to Philippines

Strong demand
The property market draws strength from sectors
anchored to the world economy. Demand for office
space for information and communications
technology (ICT) related firms such as call centers
and other business process outsourcing (BPO)
firms have provided the spark to revive the
slumbering real estate sector.
In 2006, BPO firms in the Philippines earned
US$3.6 billion, up by 50% from the previous year.
The sector now employs around 250,000 employees
and is expected to expand.
While BPO executives and expatriates add demand
to the luxury market, BPO employees form a new
breed of young urban professionals with
tremendous purchasing power, earning several
times more than the minimum wage. They have
boosted the demand for rental housing and other
products creating a ripple effect on the
construction, retail, and telecommunications
industries.
WHY PHILIPPINES?:
There are many reasons why you should
consider the Philippines. These include:
An English speaking workforce (3rd largest
English speaking nation).
Western-style business culture.
Highly educated and competent workforce (94%
literacy rate).
World-class business infrastructure.
Global companies such as AOL and Citibank
have already outsourced to the Philippines.
According to A.T. Kearney, 2004 Offshore
Location Attractiveness Index, the Philippines
ranks third as an outsourcing destination in
terms of financial structure.
Outsourcing: Why
Outsource to Philippines
India, the dominant player in outsourcing
touted as the back office of the world,
would soon have to contend with a
third-world rivalthe Philippines. A
highly skilled English-speaking labor
force. A reliable telecommunications
infrastructure. Low cost of qualified
personnel. These are some significant
reasons for choosing India or the
Philippines for outsourcing support
Offshore Destination:
Philippines :
But the Philippinesone of the worlds second-largest
English-speaking populationsis fast catching up
to India. With a literacy rate of 94%, the Philippines
has a large pool of information technology
professionals and a cost-competitive telecoms
infrastructure. The country ranks third in
Knowledge and Information-based jobs in the 2002
Global Technology Index research done by the
META Group. Three million college graduates join
the workforce each year, providing a tremendous
source of talent. An American colony for close to 50
years, the Philippines has a Western-influenced
culture, a unique trait that clearly distinguishes the
country from other offshore destinations. Although
Asian in orientation, Filipinos watch American TV
and are thus able to communicate effectively in
American English.
Lately, BPO has been booming in our country.
It has generated a new line of work that has
appealed financially to both students and
fresh college graduates, thus involving a
greater portion of the population to take
part in the services sector and ultimately
contributing to the overall GDP of the
country. With this, we are seeing a sudden
influx of foreign-owned BPO companies
and a few local ones. For instance for call-
centers there are the big players in the
market such as Convergys and Epixtar,
which have consistently expanded in the
past years.
Now the problem I see lies in the way this type of new
service sector is spreading. Much like previous
nationally lucrative forms of income in exporting
furniture and nata-de-coco, BPO in the country may
follow the same sad fate. Since BPO is of economic
interest for a country desperately in need of a panacea
to the crippling agricultural and industrial sectors, the
eventual comprehensive interdiction of policymakers
in exploiting the revenues to be gained in allowing an
overdose of BPO companies may spur complacency,
rashness, and incompetence in the ranks of
policymakers themselves. The "fast buck" mentality or
short-term planning has since been a bane to the
country's overall condition. I'm predicting that sooner
or later the services sector will become over-saturated
with BPO where quality over quantity would be the
name of the game once again. We need not wait for the
BPO service sector to reach its peak of revenue
generation for us to innovate. By that time we would
be left behind in being the favored market for BPO. As
early as we see the signs of a promising new category
in the services sector, it would be wise to look beyond
the profits and instead aim at "skills and capacity
upgrade" as a form of long-term revenue generation for
the Philippines.
Can the Philippines sustain lead
in BPO?
At the rate that the business process outsourcing (BPO)
sector is growing, it may indeed be the next big thing
in this country. However, doubts about the
sustainability of this hyper-growth situation are
increasingly being felt. This was surmised by Prof.
Ceferino Rodolfo of the University of Asia and the
Pacific in Sustaining Philippine advantage in
business process outsourcing, one of the studies on
the services sector commissioned by the Philippine
Institute for Development Studies (PIDS). BPO
encompasses several sub-sectors which include
contact call centers, medical transcription, animation,
shared services, and software development and other
outsourced service-type activities that are information
technology intensive. Over the past five years, the
BPO sector has grown tremendously, fueled
primarily
by strong global demands. In 2004, the sector reached
a size of about $1.65 billion from just about $350
million in 2001, the Department of Trade and
Industry (DTI) reported.
The DTI predicts bright prospects in five BPO sub
sectors: customer care, medical transcription,
software development, animation, and shared
services. All registered cumulative growth rates of
above 25 percent from 2001 to 2004, with medical
transcription as the fastest growing at 130 percent,
followed by call centers at 50 percent, software
development at 30 percent, and animation at 25
percent. The Philippines is widely recognized as the
emerging best location for call centers, posing
serious competition to Australia, India, and China.
The country currently stands fourth to these
countries in terms of industry size. The
opportunities for the Philippines, however, remain
strong as off shoring is predicted to gain
momentum in the coming years, the PIDS study
indicated. The Philippines continues to be an
attractive location for offshore BPO services due to
its supply of qualified English-speaking
professionals, low cost of labor, and availability of a
good telecommunications infrastructure
But while the Philippines fares favorably in all these
aspects, there is admittedly much to be improved,
according to Rodolfo. The fluid political situation,
intermittent threats to physical security and increasing
reports of graft and corruption are factors that often
discourage BPO investors, he noted. Efforts should be
done to improve the general business environment
particularly by creating a stable political condition.
Though not often cited, the high power rate is also a
source of disadvantage for BPO companies as most of
them operate all day, seven days a week, at climate-
controlled environment. The Philippines has one of the
highest tariffs for electricity rates in Asia, Rodolfo said.
Additionally, the sourcing of qualified BPO
professionals is increasingly becoming a problem,
something that is predicted to worsen in the long term
as the quality of the countrys educational system
further deteriorates. The governmentprimarily
through the DTIand the industry are already
addressing this problem by partnering with educational
institutions. These
partnerships, at present, include offering BPO-related
courses in selected colleges and universities to provide
critical skills to prospective BPO professionals while
they are still in college.
Is India Losing BPO to the
Philippines?

India may be losing its grip on BPO to eastern
Europe and the Philippines, a new study by
Gartner says.
According to Business Standard Online:
Like India (a former British colony), English is
widely spoken in the Philippines. It also has a
large and youthful population of 84 million,
with many studying in the higher education
system. The downside is that the Philippines
faces an annual typhoon season and its recent
history is marked by sporadic political
upheavals and coup attempts, the paper said.
Business process outsourcing or BPO is an
emerging industry in the Philippines. This
industry was regarded as one of the fastest
growing industries in the world. The BPO boom
is led by demand for offshore call centers. It is
estimated that 112,000 people were working in
call centers in the Philippines in 2005, bringing
in revenues of US$1.12 billion for the year. This
emerging industry in the Philippines is fueled
mostly by customer care, medical transcription,
software development, animation, and shared
services. Though customer care call centers form
the largest part of the BPO boom locally, the
Philippines' language proficient information
technology, human resource, and
finance/accounting professionals are significant
contributing factors as well. The proficiency of
many Filipinos in English is a major factor in the
growth of BPO in the Philippines.
The Philippines has the largest number of accredited
accountants in Asia, with the number growing yearly.
Areas such as Baguio City, Bacolod City, Cagayan de
Oro, Cebu City, Clark, Dagupan City, Davao City,
Dumaguete City, and Iloilo City are being developed
for offshore operations. Major companies that already
operate in the Philippines include AIG, AOL, Barnes
& Noble, Chevron, Citigroup, Dell, HP, HSBC, IBM,
Intel, JPMorgan Chase, Motorola, Procter & Gamble,
and Trend Micro. Notable BPO vendors include
Accenture, Convergys, People Support, and Unisys.
Many Major companies have experienced a great deal
of trouble finding adequate management in the
Philippines which has greatly crippled BPO
operations. Finding qualified expatriates willing to
work in the Philippines is difficult due to high
pollution levels, over population, and a corrupt and
unstable government. The US government requires
companies compensate US nationals working abroad
in the Philippines with Hazard pay. Filipino
Management is also not an option, as there are very
few qualified candidates. Large companies such as
Intel, IBM, Charter Funding, Continental Airlines,
and Lenox Financial have all had to remove all levels
of Filipino management and find ex-pats willing to
work in the Philippines.
MOVE OVER INDIA, THE
FILIPINOS ARE COMING
Well, its not yet moves over time for India. Rather the
country has moved up-market in outsourcing. This
means there is a market for customer-service call center
businesses. And the Philippines have quickly jumped
into the fray it may be a low-end, low-margin business,
but for the Philippines it has been an employment
boon. The main attraction when it comes to the
Philippines is that it is very cost-effective when
compared to India. There is however a bigger
advantage here: cultural similarities to the United
States and employee loyalty. The country has an
exceptionally long history of contact with the United
States, which includes several decades of American
colonial rule. This means call center employees here
can relate better to Americans and are also quick to
adapt to a variety of accents.
Another benefit of outsourcing to the Philippines
is that the attrition rate in the industry is a
quarter of what it is in India. One of the biggest
reasons for the rise in Indian BPO salaries is the
poaching of employees. According to
estimates, in some Indian call centers annual
staff turnover has been around 200 percent. In
Philippines, the corresponding rate is 40% or
lower! Indias huge employee turnover means
that the company has to regularly invest in
educating and training new employees. This
doesnt look too good on the companys
balance sheet. The longer an employee stays in
one company, the better the quality of service.
This means the Philippines has a definite
advantage over India with its low attrition
rates.
Collaboration between Philippine and India-
based outsourcing organizations: A marriage of
convenience?

Even as Asian countries compete among themselves for
a larger slice of the global outsourcing market, there
is news that the Business Processing Association of
the Philippines (BPAP) and India's National
Association of Software and Service Companies
(NASSCOM) have come to an understanding to
collaborate in seven strategic areas. The areas that
have been identified are strategic communications,
geographic risk mitigation, shared best practices and
adherence to international standards, data security
and privacy, workforce collaboration and
cooperation, and infrastructure improvement. The
collaboration initiative comes after a detailed process
of thrashing out the details so that the agreement is in
the best interests of outsourcing vendors in either
country.
In the Philippines, BPO is seen as one of the
drivers that would secure the country the
position of being top destination of choice for
ICT services. Some non core yet critical
backroom operations that have been
outsourced to the Philippines include
accounting, contact center services, human
resource administration, claims
administration, and logistics. With its
excellent telecommunications infrastructure
and its pool of superior talent, the
Philippines are at a good position to
accommodate these demands.
Philippines: Call Center Hub
In recent years, the Philippines have become the
offshore destination of choice for call center
outsourcing, specializing in customer support
services. Because of the Filipinos high level of
English proficiency and strong customer orientation,
many leading multinationals have used the
Philippines as a global center for customer service.
American Online, the largest U.S. Internet service
provider, maintains a staff of 600 at its call center in
Clark, Pampanga. Caltex, Procter & Gamble, Barnes
and Noble, among others, have built large-scale
service centers in the Philippines. One very
promising industry that has sought outsourcing
support in the Philippines is the medical
transcription business. The Philippines boasts a
large talent pool of medical professionals, including
doctors, nurses, and medical technologists. The
demand for medical transcription has risen as U.S.
hospitals are now required by federal regulations to
convert medical records into data format. Seventeen
medical transcription companies are now in
operation, employing 1,200 Filipinos.

Business process outsourcing is regarded as one of the
fastest growing industries in the world. Business
process outsourcing in the Philippines became the
latest trend in the services sector in the 2000s and is
led by demand for offshore call centers.
The growth of call centers continue to be rapid, up
from 72 registered in late 2003 when the Asian Call
Center Review reported the Philippines as the first
rank in the offshore call center industry for the
Asian region, surpassing India at the second spot.
From being an almost unexplored BPO territory in
2000, the call center industry has grown by leaps
and bounds. The Philippines Board of Investments
(BOI) estimates growth rate of this industry since
2001 to 100 percent annually. It is estimated that
200,000 people are working in 120 BPO (mostly
Contact Centers) in the Philippines in 2006, and
expected to bring in revenues of US$3.8 billion for
the year - a sharp increase from 2000 when call
centers employed 2400 people and earned US$24
million.
In 2004, the Philippines already captured 20
percent of the total world market share in
contact center services. The Philippine
government estimates the Philippines could
capture 50 percent of the total world English-
speaking market in 2008. This industry, aside
from contributing 12 percent in to the
Philippines gross national product, is also the
fastest growing provider for Filipino college
graduates. The Information and
Communications Technology division of the
BOI reported that the call center industry
experienced a growth rate of 70 percent in 2005
making it the most dynamic of all sectors in the
Philippine information technology industry.
According to industry forecasts, more than a
million Filipinos would be employed in the call
center industry, with more than US$12 billion
in revenues in the year 2010.
The Philippines is also considered as location of
choice due to its less expensive labor costs.
The country offers 24/7 multilingual and
multimedia supported premium services for
marketing, sales, customer care, crisis
management, investor relations and other key
business applications. The reasons cited for the
bullish outlook towards the Philippines have
been, among others, due to lower operating
costs, English language proficiency and high
ICT skills yet low-cost workforce.
The Philippines is considered a major player in the
global BPO market. In 2005, the country ranked
in the top 10 world wide for top BPO
destinations, according to neoIT's 2005 Mapping
Offshore Markets Update.
The current drive in USA and UK for BPO outsourcing
started with an earlier urgent requirement of software
engineers for the Y2K event. The West fell short on
trained manpower and called for talent from India. The
latter provided its best and the brightest and the Y2K
event passed uneventfully. In two years since the Y2K
(1997-99), India has been recognized as a resource pool.
Business managers in USA have learnt that the same job,
which will cost one dollar in USA, cost only 30 Cents in
India. In terms of quality, it will be equal or
better. Hence, these two, become immediate reason to
get work done in India. Not to be outdone Philippines,
Australia and Ireland has joined India in grabbing these
jobs. China is close behind but suffers a major drawback
- lack of English-speaking work pool.
The call center industry is one of the countrys
bright prospects in the area of business
process outsourcing (BPO). It started in year
2000 and became a significant activity in the
services sector. In 2004, the country captured
20 percent of the total world market share in
contact center services and is estimated to
capture 50 percent of the total English
speaking world market by 2008. Some
industry analysts projected that more than a
million Filipinos will be employed in the call
centers in year 2010 and can bring about
US$12 billion revenue to the country. A call
center is a centralized office used for the
purpose of receiving and transmitting a
large volume of requests by telephone.
The agents, often called as customer care
specialists or customer service
representatives, handle the inquiry of the
customers on behalf of a client via voice
call. The clientele includes telemarketing
services, banks and financial services,
computer product help desk, transportation
and freight handling firms, and
information technology companies. A call
center does not only serve as a venue for
the telemarketing of products and services
but also provides solutions to problems and
customers complaints on certain products
and services.

The size of call center operations is described
according to the number of seats available.
A seat is a work station with a computer
terminal and a telephone line which two or
three people can use in alternate shifts to
provide a 24-hour service. There are two
types of services in a call center: the inbound
and outbound services. The inbound
services deal with customer inquiries and
technical assistance. This is usually done
during night time in the Philippines which is
equivalent to day time in the United States.
The outbound services, on the other hand,
deal with telemarketing services and follow-
up calls. This is conducted during off-peak
hours, usually day time in the Philippines.
Giving India a Run for Its
Money :
While the Philippines may not be as a huge an offshore
provider of web and software services as India, it
holds great promise in the customer service industry.
Although India does charge lower than the
Philippinesfor data encoding work, India charges
around $4 (U.S.) versus $6 in the Philippinesmore
multinationals are choosing the Philippines because of
the high quality of work. Moreover, Filipinos make
good customer service agents not only because they
are fluent in American English but also because of
their helpful and friendly nature. More companies are
choosing the Philippines for offshore support. Among
the services offered in Philippine-based outsourcing
companies are copyediting and indexing; web design
and maintenance; data conversion, data warehousing,
data capture and data entry; OCR and scanning
services; proofreading; encoding and keyboarding;
imaging services and graphics design; call center and
customer service; abstracting and document
conversion; typesetting; and tagging, among others.
OUTSOURCING SOLUTIONS INC.
Based in Cebu City, Philippines, offers a support
service that enables smaller companies to outsource
minus the risk. Began in 1998, OSI initially offered
data entry and typesetting/book formatting work,
website design and development, word processing
and, over the years, has evolved into a highly
specialized service-oriented company providing
outsourcing solutions to partners such as Lexis
Nexis, Xlibris, Bank of America, Mother Earth
News Archive, Sound Choice, and Cannon Creek,
among others. Integrating on-site American
management and a team of Filipino professionals
dedicated to a certain client's work, OSI is able to
deliver services at costs lower than most others
without sacrificing quality or time. Its effective
service model allows clients to concentrate on their
core businesses and enhance their position in the
marketplace. Beyond administrative capabilities,
OSI has also developed its technical competency
and expertise valuable in project start-up and
expansion.


For the last five years, OSI has delivered cost-
effective, top-quality services such as financial
research and analysis, data entry/capture,
typesetting, document conversions, word
processing, SGML tagging, copy editing and press
release writing, document scanning and proofing,
HTML coding, data archiving, Internet research
and surveillance, transcription, website design and
development, and desktop publishing related work.
With its motivated and well-educated Filipino
workforce and American management, OSI has
maintained a Filipino-American cultural
compatibility enabling the delivery of better
services not obtainable in other countries offering
offshore support.
Majority of the BPO facilities are located in Metro
Manila although other regional areas are now being
promoted and developed for offshore operations.
Major companies that already operate in the
Philippines include AIG, AOL, Barnes & Noble,
Chevron, Citigroup, Dell, HP, HSBC, IBM, Intel,
JPMorgan Chase, Motorola, Procter & Gamble,
Siemens AG and Trend Micro. Notable BPO vendors
include Accenture, Convergys, and Unisys. There are
numerous smaller operations that either support
larger vendors during seasonal demands, or directly
service Small and Medium overseas companies.
Major vendors are managed jointly by expatriate and
local managers whereas smaller operations maintain
their viability through direct management by its
owners, who themselves are most likely to be from
the BPO and ICT industries. The Philippines' Center
for International Trade Expositions and Missions
(CITEM) report for 2004 cited the Philippines as
among the top 10 choices for offshore operations.
Market Share and Structure
The Philippine BPO sector grew from
$350 million in 2001 to $1.65 billion in
2004 in terms of revenue. The biggest
sub sector is the customer care or call
center which captured 53 percent of
the total BPO sector. According to the
Department of Trade and Industry
(DTI), there are approximately 37
firms in the call center industry
catering to the US and British
markets.
The Philippines had 20,000 seats in 2003 which
increased to 40,000 seats in 2004. The 100
percent growth in the number of seats puts
the country directly behind the major
players in the industry. Assuming there are
three people in one seat, the number of
employed people in the industry increased
from 60,000 agents in 2003 to 120,000 agents
in a span of one year. The employment
opportunity from the call center is
complemented by the attractive salary and
benefits that firms offer, which is
approximately $300 to $350 a month for an
entry level position.
The Philippine Advantage
and Challenges
The country emerged as a popular site for contact
center destinations in Asia because the Filipinos
possess innate advantages that are attractive to
outsourcers. However, there are also some areas
and challenges that need to be addressed in order
to sustain the BPO projects in the country. The
Filipinos command of the English language is one
of the biggest pull factors for firms to set up their
operations in the country. Further, the improved
telecommunication infrastructure augurs well for
the provision of telecommunication-related
services. A side advantage is the quick and smooth
cultural assimilation of foreigners managing the
call centers.
It is anticipated that demand for contact center
employees will continue to increase in the
near future. However, there is also a
possibility that there will be a shortage of
qualified employees due to the deteriorating
quality of the country's educational system
and lack of communication training needed
by the industry. To address this challenge,
the Philippine government, through the DTI
and in partnership with various educational
institutions, included BPO-related courses
in the curriculum of some of the colleges
and universities in the country.
Other challenges that the industry faces are the
unstable political environment and the
widespread rumors of kidnapping and terrorist
attacks, all of which drastically affect investor
confidence and reduce the potential for increased
investment in the outsourcing services. As such,
the need to improve the peace and order situation
in the country is very crucial. The high cost of
power is also regarded as a major challenge that
impedes the operation of BPO companies. A
solution suggested is the peak load pricing of
electricity which essentially lowers the electricity
rate for night operation of BPOs. The Philippines
is referred to as the best-kept secret among
contact center providers. Because of this, more
effort must be exerted in the global community to
promote the Philippines as an investment
destination.
The call center industry may be regarded as
a sunrise industry that will provide jobs
for Filipinos and dollar revenues for the
country in the coming years. While the
Philippines is recognized as one of the
popular sites of contact center destination
in Asia, there is stiff competition from
other countries like China. Local policies
and initiatives should be designed to
sustain the growth of the call center
industry.
Number of seats 2003-2004

Country 2003 2004f Growth (%)
Australia 135,000 146,000 8
India 96,000 158,000 65
China 38,000 54,000 42
Philippines 20,000 40,000 100
New Zealand 12,000 13,500 13
Thailand 11,000 13,000 18
Singapore 10,000 10,100 1
Hong Kong 10,000 10,700 7
TOTAL 332,000 445,300 34
f - forecast
Advantages
English proficiency and superiority of verbal
skills
Affinity to US culture
Low cost of labor
Low cost of real estate
World class telecommunication
infrastructure
High level of satisfaction from
expatriates regarding quality of life
and cultural assimilation
Issues and Challenges
Deteriorating education system
Unstable political environment
Inadequate marketing on Philippine advantage
High cost of power




ECONOMIC GROWTH
Business Outsourcing Sector to Sustain Double-Digit
Growth the Philippine government is projecting the
fast growing business process outsourcing sector to
continue turning in double-digit growth in terms of
revenue and employment, based on new investments
and the expansion of existing industry members. For
the past years, its no secret that the IT (information
technology) and BPO sectors of the Philippine
economy have set up strategic businesses here, and
the Philippines has benefited enormously from these
investments, Trade Secretary Peter Favila said in a
speech during a news conference on the seventh
Global Sourcing Conference and Exhibition
scheduled next month. The trade departments Board
of Investments estimates that the BPO sectors
revenue this year will grow 37% to .99 billion from
last years estimated .63 billion.
The sector generated revenue of .42 billion in 2005.
The Board of Investments also estimates the
sectors workforce to expand 40 % to 343,013
employees this year from the 2006 estimate of
244,675. In 2005, the sector employed a total of
162,250. Back in 2000, the BPO industry had only
2,400 employees and million in revenue. By
2010, this sector is projected to grow to a .5-
billion industry and create close to a million
jobs, said Favila. Towards this end, the
government has been pursuing efforts to market
the Philippines as a BPO site for companies in the
US, Australia, Asia and Europe. The US currently
accounts for 85 % of the Philippines BPO market,
said Jeanette Carrillo, business development
manager for IT and officer in charge of the
information and technology division of the Board
of Investments.
During the next few years, the US will
remain our top market, but we want to
expand our reach in Europe, Australia and
Asia. India is also looking at the Philippines
as an outsourcing destination, Carrillo
told Dow Jones Newswires on Thursday.
India currently ranks as the worlds top
outsourcing destination. Carrillo said the
government expects the BPO sector to
become the third largest contributor of
foreign exchange after merchandise exports
and overseas workers remittances. The
Philippines is now moving toward higher
value-added services to further enhance the
revenue potential of outsourcing, said
Favila.
The Philippines is a developing country in South-
East Asia. In 2004, it was ranked as the 24th
largest economy by the World Bank according to
purchasing power parity. The Philippines is one
of the newly industrializing countries in the
world.
Important sectors of the Philippine economy
include agriculture and industry, particularly
food processing, textiles and garments, and
electronics and automobile parts. Most
industries are concentrated in the urban areas
around metropolitan Manila. Mining also has
great potential in the Philippines, which
possesses significant reserves of chromite, nickel,
and copper. Recent natural gas finds off the
islands of Palawan add to the country's
substantial geothermal, hydro, and coal energy
reserves.
OVERVIEW
This industry is regarded as one of the fastest growing
industries in the world. International investment
consultancy firm McKinsey & Co. predicts that the
demand for outsourcing services will reach $180
billion in 2010, with the customer contact services,
finance and accounting, and human resource sub-
sectors taking up the biggest shares. When it comes to
the trend in primary business requirements, experts
are seeing a shift from cost-effectiveness to skills
quality and competence. This development all the
more strengthens the Philippines' position as an
emerging global leader in the BPO industry (BPAP
2006). The BPO boom in the Philippines is currently
led by demand for offshore call centers.
The Philippines raked in offshore service
generating revenues of $2.1 billion in 2006,
placing third behind India and China and
slightly ahead of Malaysia. That's up 62%
over the $1.3 billion it gained in 2004, and a
huge increase from the start of the decade
when the outsourcing industry in Manila
employed just 2,400 people and the industry
had revenues of merely $24 million. It is
estimated that 200,000 people are working in
120 BPO (mostly Contact Centers) in the
Philippines in 2006. Overall, Philippine BPO
is forecasted to earn US$11 billion and
employing 900,000 people by the year 2010
(Shameen 2006).
The recent growth spurt in the outsourcing industry in
the Philippines has been fueled not by traditional
low-value-added call centers but more higher-end
outsourcing such as legal services, Web design,
medical transcription, software development,
animation, and shared services. Though call centers
still form the largest part of the sector, the
Philippines has begun leveraging its creative design
talent pool, its large pool of lawyers, and its
professionals in accounting and finance (Shameen
2006). To achieve and sustain this rapid growth, the
Philippine government is offering significant fiscal
and non-fiscal incentives to attract foreign direct
investment in these industries as part of the 2006
Investment Priorities Plan. The IPP was prepared by
the Board of Investments (BOI), as the lead agency in
promoting investments, focused on the sectors
identified in the Medium-Term Philippine
Development Plan (MTPDP) 2004-2010 (PBOI 2006).

Outsourcing to Brazil

Why Brazil?
Brazil is often referred to as the motor of
Latin America. Its easy to see why. With a
population of 180 million, Brazil's economy
is the largest of Latin America and the tenth
in the world. The Brazilian market gives
access to Argentina, Paraguay and
Uruguay, with whom Brazil created the
joint market Mercosul. By most measures --
geographic size, population, and gross
economic product, each approaching 50 per
cent of South America -- Brazil is the
continent's dominant country.
Brazil as an Outsourcing
Destination

It's a fair bet that Brazil will beat off all challengers
this summer to retain the Football World Cup in
Germany. Brazil is well known for its stamina, skill
and flair on the football pitch, usually leaving the
rest of the world competing for second place. But
far removed from these football certainties is how
well Brazil will fare in a newer contest now taking
place across the business world -- the contest to be
the next location for off shoring of IT and business
process services. Is Brazil a serious competitor in
the "BPO/ITO World Cup"? Do they have the "right
team" to get to the final or do they face
disqualification in the first round?
The business of off shoring has been maturing
for decades. Driven by strategies to reduce
costs, generate economies of scale, and focus
on core competencies, it's clear that IT and
business process outsourcing work. India has
stood out as the pre-eminent force in this
process; but in practice most global
companies and offshore service providers are
looking to spread their facilities and
investments on a global basis, rather than in
just one location.
As a result, there's keen competition to be seen
as "the next offshore location." And there's no
shortage of competing countries, ranging
from Poland, the Czech Republic, Canada,
Russia, even Costa Rica and Jamaica.

Customers and suppliers concerned about rising costs in
India are evaluating alternative geographies.
Meanwhile, many countries are anxious to inherit the
designation as the next great offshore destination. One
of these is Brazil, Latin America's largest economy with
a strong local market just now turning to a focus on
software and services exports. Brazil has strength in
financial systems, extensive legacy skills, and
competitive billing rates. However, Brazil's robust IT
sector is overwhelmingly local in orientation, and
software/services exports remain minimal. Brazil's
smaller scale in terms of qualified personnel resources
and limited English language competency prevents the
country from having massive impact la India or
China. But Brazil provides great promise as a
secondary offshore destination, particularly for
customers who have complementary commercial
interests in Latin America's largest economy and are
willing to embrace a captive approach.
Brazil Indicators
When searching for a suitable
offshore location, client
organizations need to scrutinize a
comprehensive set of indicators,
including labor costs and political,
economic and social risks, among
others. For Brazil to stand out as the
"right decision," it needs to provide
a compelling answer to each of
these points.
Geographical Proximity

Brazil's proximity to
the US makes it
distinctly more
accessible than
more distant Asian
locations. It
therefore qualifies
as a "near shore"
location for the US
market, along with
Canada and
various Caribbean
countries.
Labor Pool
With a population of 182 million growing at 1.1%
per year, Brazil has an estimated educated
workforce of 83 million. The country clearly has
a substantial labor pool, potentially a major
strength when many offshore locations are
rapidly "overheating.

Labor Costs
Brazil is cheaper than almost all other South
American or European countries, with a 30%
salary advantage cost over the US. However it is
not the cheapest option, with Indian locations
benefiting for an additional 30% cost advantage.
The average salary for an "entry level" IT worker
is about $9,000, while in China and India it's
about $5,500.
Language Skills
In the only South American Portuguese speaking
country, English is only modestly spoken. The
Spanish language gets bigger play, but
nothing compared to its native Spanish
speaking neighbors Uruguay, Argentina, Chile
and Mexico, which are also taking part in this
competition.

Economy
Economically, Brazil has changed a lot since the
days of 2,000% inflation. Today the economy is
stable, with a 6% inflation rate at the end of
2005. The IT sector itself is a well developed
$10 billion market, with an $8.3 billion
multinational presence.
Brazil has been showing signs of becoming a serious contender
in recent years. Aware of the opportunities of tapping into
offshore demand, in 2004 the big national players in the IT
service industry in Brazil (CPM, Datasul, DBA, Itautec,
Politec and Stefanini) created BRASSCOM with the main
objective of promoting the export of IT services among its
current roster of 3,265 IT firms. The Brazilian Association of
Software and Services Export is a clear attempt to emulate
the Indian success story (though, if the organization's Web
site is any indication, the effort is an anemic one).
As proof of concept for this approach, CPM was recently
awarded a $7 million outsourcing contract with a major
European bank. At the end of 2005 Stefanini became the first
Brazilian native company to achieve Capability Maturity
Model Integration (CMMI) Level 5 certification.
The Current State of Play

The global outsourcing service providers and software
firms have a strong presence in Brazil and many are
already serving their global client bases. Companies
such as IBM, Unisys, HP, EDS, Accenture, Deloitte,
Motorola, Intel and Nokia all have offshore centers in
Brazil. In addition, TCS, the largest of the India
offshore players, has plans to create a new global
development center in the state of Sao Paulo, in
addition to an existing center in Brasilia.
As the offshore market continues to evolve, Brazil
appears to be well placed to compete. It won't
provide the lowest prices, but in an increasingly
sophisticated marketplace, this is no longer the only
assessment criteria. Brazil has a mix of capabilities
that, in particular, position it to provide near shore
services to the US. It also has the beginnings of a
track record in ITO and BPO. It appears unlikely
they'll ever displace the current market leader, India,
but by the time of the next World Cup in 2010, Brazil
may well be one of the leading runners up.
Brazil Executive Call Center
Report 2007: An Emerging
Sourcing Giant

The Brazil Executive Call Center Report 2007 offers
strategic guidance and detailed decision making
cost estimates and economic handlers to
corporate buyers, vendors, investors and
executives about how to compare and evaluate
Sao Paulo, Rio de Janeiro, Belo Horizonte,
Curitaba and Florianopolis, for site selection
service - supplier analysis and investment.
Intense focus is given to comparing these five
cities within the Sao Paolo Rio de Janeiro axis
which is responsible for over 90 % of contact
center BPO activity in the country.
Brazil is regarded as one of the four key catalysts
among the so-called BRIC (Brazil, Russia, India,
China) nations driving service globalization.
Central to both its service export success and
internal economic expansion is its emphasis on
contact center Business Process Outsourcing
(BPO) and IT services. The country is Latin
Americas biggest economy and also boasts the
regions largest contact center or voice-based
BPO agent population of just over 200,000 agents
(216,243). These numbers represent a significant
increase from the markets 55,000-agent base in
2001. Data on Brazils overall contact center BPO
and IT outsourcing revenue is estimated to be
US$2.4 billion with about 10% generated from
international contracts.

A higher percentage of its centers use advanced
email and collaboration customer interaction
technology when compared with the U.S. and
Europe. The industry generates over US$2
billion in revenues, with 90% coming from
internal outsourcing and companies managing
their own centers. Approximately 10% of
revenues are generated from international
markets lead by the U.S. and followed by
Europe and Asia.

Zagada finds that close to 300 of the countrys
almost 2,000 universities and institutions of
higher learning serve the Sao Paulo-Rio axis
and graduate 1.2 million students each year.
This offers a ready talent source for contact
center BPO companies seeking to expand or
locate in Brazil.
While Brazil has a large internal market and an
expanding contact center BPO and IT sector,
Zagada finds that the country faces a number
of internal and external challenges.
Internally, rising inflation rates, increasing
wages as well as high levels of software
piracy rates define the challenge. While
government data projects a 5% GDP 2007
growth rate, most analysts agree on a range
under 4%, which represents half of India and
China its leading outsourcing competitors.
Additional contact center BPO competing
locations include Argentina, Mexico, Central
America, the Dominican Republic and the
Philippines. Brazils cost estimates are
compared with these markets for easy and
accurate evaluation.
The Brazil Executive Call Center Report 2007 offers
strategic guidance and detailed decision making cost
estimates and economic handlers to corporate buyers,
vendors, investors and executives about how to
compare and evaluate Sao Paulo, Rio de Janeiro, Belo
Horizonte, Curitaba and Florianopolis, for site selection
service - supplier analysis and investment. Intense focus
is given to comparing these five cities within the Sao
Paolo Rio de Janeiro axis which is responsible for over
90 % of contact center BPO activity in the country. The
report highlights that Brazil has Latin Americas largest
contact center BPO agent population of over 200,000 and
creates jobs for close to 1 million workers associated
with the industry. These numbers represent a significant
increase from the markets 55,000-agent base in 2001.
Data on Brazils overall contact center BPO and IT
outsourcing revenue is estimated to be US$2.4 billion
with about 10% generated from international contracts.
We project that the country is on track to have
350,000 agents by the end of 2007, despite a slow
down in its average annual growth rate in the
sector. The report indicates that while Brazil has
over 1,000 call center operators, the market is
highly segmented with 10 larger centers
generating under 20% of the markets revenues.
These centers are evaluated as well as the vendor
and equipment service providers. Avaya again
has a commanding lead in the market with
Plantronics as the leading headset provider.
Close to 300 of the countrys almost 2,000
universities and institutions of higher learning
serve the Sao Paulo-Rio axis and graduate 1.2
million students each year. This offers a ready
talent source for contact center BPO companies
seeking to expand or locate in Brazil.
While Brazil has a large internal market and an
expanding contact center BPO and IT sector,
we find that the country faces a number of
internal and external challenges. Internally,
rising inflation rates, increasing wages as well
as high levels of software piracy rates define
the challenge. While government data projects
a 5% GDP 2007 growth rate, most analysts
agree on a range under 4%, which represents
half of India and China its leading outsourcing
competitors. Additional contact center BPO
competing locations include Argentina,
Mexico, Central America, the Dominican
Republic and the Philippines. Brazils cost
estimates are compared with these markets for
easy and accurate evaluation.
Well Positioned For Continued
Growth
0.0%
1.0%
2.0%
3.0%
4.0%
2006 2007 2008
Anticipated margin expansion driven by:
- Operating leverage
- Expanded use of offshore resources
- Stringent cost containment
Brazil Aims to be
Outsourcing Giant
In the past decade Brazil has come a long way in
shedding its image as an exporter of commodities
like coffee, sugar and iron ore. Today, the country
is a fledgling industrial power with expertise in
advanced technology, making products like
commercial airplanes and so-called flex-fuel cars
that run on ethanol and gasoline.
Hoping to follow other developing countries like
India, Brazil's government is trying to turn the
country into an outsourcing center. It has joined
with local software companies to promote Brazil's
information technology overseas, Brazil is offering
special credit lines to technology companies that
are focusing on foreign markets.
Brazil is a newcomer to outsourcing. The country
exported only about $400 million in software and
information technology services last year,
according to industry estimates. Though the
government expects that to rise to $2 billion by the
end of 2006, it would still be low, compared with
an estimated $15 billion in Indian outsourcing last
year.
Brazilian government officials and software industry
executives in So Paulo say they are not out to take
on India, but to meet the demand for affordable
outsourcing closer to the United States.
"We are selling ourselves as an alternative to India,
not a competitor," said Marco Stefanini, chief
executive of Stefanini IT Solutions, an information
technology firm based in So Paulo that is doing
outsourcing for 15 companies in the United States,
including Johnson & Johnson, Kimberly-Clark and
Lucent Technologies.

"The government is finally waking up to the fact that
we have a software industry that can compete
globally," said Djalma Petit, who is in charge of
promoting exports for Softex, an association of
Brazilian software companies.
"This market is expanding rapidly, so we don't need
to steal customers away from India," he said.
"There's plenty of business to go around for all of
us.
The United Nations Conference on Trade and
Development said the global outsourcing industry
was still in its infancy, and that the trend was
approaching a tipping point "from which cascades
of new off shoring will spring." As the world
becomes more dependent on information
technology, the report added, dozens of countries
will step up to fill the void as expertise in new areas
and geographic concerns come into play.
Many people in the industry have said that Brazil is in
position to take a good share of that market. The
country's telecommunications infrastructure is
already state of the art, after receiving billions of
dollars in investment since it was privatized in the
late 1990s. Another advantage is that the time
difference between Brazil and the United States is
minimal. A rising number of American companies are
taking this into account, especially when they
outsource data centers and call centers.
Brazil also has a thriving domestic market for software
services and there is a history of rapidly embracing
new technology. The country's banking sector is
among the world's most automated, having
developed sophisticated fund-management software
in the early 1990s to help quick calculations while
dealing with hyperinflation. A few years ago, the
country also switched to electronic voting machines
in all elections, and tens of millions of Brazilians now
file their tax returns on the Internet.
Outsourcing
Opportunities in Brazil

South American countries, particularly Brazil,
are becoming more popular as destinations
of Western outsourcing, as well as off
shoring activities from Asia and other
regions. Brazil offers great investment
opportunities in sectors like business
process outsourcing (BPO), banking and
financial services, cement, iron ore and
chemicals, according to the Federation of
Indian Chambers of Commerce and
Industry (Ficci).
"China is already making inroads into Brazil in
farming, steel and other manufacturing
sectors.
"India and Brazil have complimentary
strengths and together they can focus on the
third country markets.
A critical factor in selecting offshore
destinations, Brazil is in a good position
compared to competition in India, the
Philippines, and Canada, where costs are
rapidly rising.
The conditions are right for offshore-
outsourcing in Brazil but several questions
remain. For example, whether or not English
language calling can be supported effectively
from Brazil.

Brazil Stock Market 2001-2007
Brazil could prove compelling'
near shore Customer Service
Outsourcing option for US

Brazil-based contact center agents serving
offshore clients are set to almost triple in five
years.
The number of contact center agents located in
Brazil and servicing offshore customers is
expected to rise from 3,900 in 2005 to 11,500 in
2010. What's more, demand for Brazilian-
based customer care services from companies
domiciled in the US is forecast to grow at a
compound annual growth rate (CAGR) of
27% between 2005 and 2010 compared to 21%
from other regions.

'Content Outsourcing entails allowing another
company to handle specific needs of the
primary firm, which that firm cannot or does
not want to do. This allows companies to focus
on their core competencies and contract out
other types of services.
Brazil's strong domestic market has produced
more in-house contact center agent positions
than anywhere else in Latin America. What this
means is that a sizeable pool of well trained and
experienced contact center agents already exist
in Brazil, thus giving it an advantage in terms of
experienced contact center management.
In terms of cost per agent, a critical factor in
selecting offshore destinations, Brazil is in a
good position compared to competition in India,
the Philippines, and Canada, where costs are
rapidly rising.


The conditions are right for offshore-outsourcing
in Brazil but several questions remain. For
example, whether or not English language
calling can be supported effectively from Brazil.
On the other hand, there's room for Brazilian
contact center work in Spanish-speaking US
regions and other Caribbean and Latin
American (CALA) countries. Even more
uniquely, possibly Japan.
While some challenges face Brazil as it seeks to
expand its position in the global market for off
shoring agents, including issues of language,
perception of stability, and macroeconomics, the
future looks bright.
Overall, the number of CALA-based contact
center agents servicing offshore customers is
forecast to more than triple from 16,200 in 2005
to 44,900 in 2010.
Brazil Overview
Population: 190 Million People
GDP Growth: 3.1%
Worlds 10
th
largest economy
Inflation: 2.65%
95 Million bank accounts
35 Billion transactions, 17% growth
2005 Card Market Growth 30%
Currency (Reais per US$)
2007 = 2.14
2006 = 2.19
2005 = 2.43



Outsourcing to Malaysia

Outsourcing Malaysia

Outsourcing Malaysia is a new joint initiative by
several groups -- the Association of the
Computer and Multimedia Industry of
Malaysia (PIKOM), Multimedia Development
Corp. (MDeC), and Malaysia Debt Ventures
(MDV) -- to position the country as an
attractive location for shared services and
outsourcing (SSO).
But Malaysia is hardly new to the business of
global services. This small country of 24
million in Southeast Asia is already host to
dozens of multinationals that have tapped
expertise in the energy, finance and logistics
industries, many through captive
arrangements.
In both its 2004 and 2005 Global Services Location
Indexes, consulting firm A.T. Kearney named
Malaysia the top third location for shared
services and outsourcing behind only India and
China and just ahead of Singapore. The ranking
analyzes the top 40 service locations worldwide
against 40 measurements in three categories:
cost, people skills and availability and business
environment. Government promotion policies
continue to pay off... Malaysia has augmented
continued investment in world-class
infrastructure along the Multimedia Super-
Corridor, with further incentives for
corporations choosing to locate in Malaysia and
additional policies to open up the labor pool and
deepen English language and technical skills
throughout the population."

In its Global Institute Labor Supply
Database McKinsey points out that
although Malaysia has a "relatively small"
pool of talent, its graduates have
"significant international experience." That
is a result of three decades of foreign
investment in the country by global
companies such as Shell, DHL and Dell.
Likewise, Frost & Sullivan, which shared
the stage with the outsourcing consortium
in Austin, also has identified the potential
for major growth of SSO in Malaysia in
survey work that is ongoing.
The advisory firm sizes the SSO market
worldwide at $758 billion for 2005. Of that,
off shoring accounts for about 6% -- $46.5
billion. While domestic SSO is expected to
grow about 12% a year over the next three to
four years, offshore is expected to grow
between 20% and 30% annually over the
same timeframe.
The finance industry is the biggest spender
(accounting for 33% of the global SSO spend),
while the energy industry is growing the
fastest (with a compounded annual growth
rate of 21.5%), said Aroop Zutshi, president
and senior partner at Frost & Sullivan. The
firm has identified logistics as the fastest
growing vertical in the Asia Pacific region.

This positions Malaysia well for becoming a
dominant player in the SSO arena. In the area of
finance, said Zutshi, while India is the "clear
favorite due to cost and skill of its human
capital," and China is "ambitiously catching up
by leveraging on human capital," Malaysia is
"preferred due to its 'First World infrastructure."
In the energy sector, Frost & Sullivan points to
Malaysias "prominence in the sector...due to
clustering of industry players and a skilled talent
pool."
In the area of logistics, said Zutshi, Malaysia has
been identified as the "rookie of the year," by
virtue of being a newcomer "thriving on a high
concentration of supply chain management
expertise and...completeness of infrastructure
ecosystem."
Whos Doing Business There

Momentum for doing business in Malaysia, according to
Frost & Sullivans Zutshi, is coming from companies
looking for specific domain expertise. "We hear of
countries like India that have excelled in knowledge
process outsourcing, China in the manufacturing side.
What is interesting is that many, many companies
today -- especially the Fortune 500, that spend
millions of dollars on outsourcing issues -- are
looking for pockets of excellence, countries -- regions
within countries -- that can offer core competencies in
certain areas to help on the process side..."
Companies are seeking "business processes that go
beyond generic ones," said David Wong, co-chairman
of Outsourcing Malaysia, "Thats why the industry is
moving... not on the cost differential, but on the value
youre getting."
Outsourcing Malaysias job is to make sure the
capabilities exist as well as the domain
knowledge to be able to serve growing
demand. He said the goal is to "achieve 60,000
knowledge workers by 2008" -- up from 40,000
currently -- to serve the supply side of talent
requirements.
During the announcement, Rob Cayzer, director
of Shared Services and Outsourcing for
MDeC, which oversees the development of
the Multimedia Super Corridor in Malaysia,
held up a brand new type of Motorola Nextel
phone and said that it was "designed,
researched, developed, tested, manufactured
and shipped out from Malaysia. This is the
kind of high end services you will find in
Malaysia."
In the financial services realm, Standard Chartered
Bank and HSBC have set up global processing
hubs in Cyberjaya, a hub location for ICT
companies that is situated midway between Kuala
Lumpurs city center in the north and the Kuala
Lumpur International Airport to the south.
Citibank runs a regional trade processing center in
Penang.
Royal Dutch Shell Group runs a global IT support
center in Cyberjaya, offering desktop support as
well as engineering and development services to
Shell companies around the world.
DHL has located its regional IT hub there,
responsible for operations in Asia Pacific. Known
as DHL GIS Cyberjaya, its one of three global data
centers run by DHL around the world.
HP is running a data center in Cyberjaya as well as
Petaling Jaya outside of Kuala Lumpur. The
company said part of its drive to open the newer
center in Cyberjaya was to support local clients,
including DHL and Western Digital.
Other companies with a presence in Malaysia include
Microsoft, Intel (with 8,000 employees in Malaysia,
including 1,500 in R&D), Ericsson, BMW and Nokia.
On the service provider side, IBM, Fujitsu, EDS and
CSC have all set up operations there. On May 9,
2006, ACS announced the opening of a new
technical development center in Cyberjaya, which
will employ 700 workers by 2007. From this facility
ACS said it will provide clients with network and
desktop engineering solutions, system engineering
services, mainframe support, application
management systems, customer care and human
resources services.
Much of what has attracted this blue-chip roster of
companies is a stable government, a highly skilled
talent pool and competitive costs. The country enjoys
low inflation, low staff attrition and high levels of
returnees among its foreign graduates. Also, unlike
many other nations aspiring to become a favorite pick
in global sourcing portfolios, said MDeCs Cayzer,
"Malaysia is an affluent country."
At the same time a number of domestic service providers
are also building growing businesses in Malaysia.
These include BPO firm Scicom; IT service provider ea
cap; Sapura, which has grown from being a telecomm
provider to becoming an expert in fields such as ICT,
energy, industrial and automotive; Vsource, which
runs centers of excellence across Asia for banking and
finance, insurance, transportation, manufacturing and
technology; and ICT provider Kompakar, which
became a national hero when it became CMMi Level 5-
certified and earlier this year won a RM1.15 million
deal with a hospital in China.
Malaysia Finds Its Groove

So why jump up and down (to a disco beat) and
launch Outsourcing Malaysia when its been
around for years anyway? Why take on hosting
WCIT 2008? According to MDeCs Cayzer, "When
AT Kearney ranked Malaysia as number three in
the world, it shocked a lot of people." He pointed
out that it arrived in a time when confidence in the
country was just coming out of a low point --
following on the Asia financial crisis of the turn of
the century.
"This ranking is a potential," he said. "When this thing
first started, we were considered very expensive
compared to India. Now compared to Bangalore, in
the high end IT space, were considered cheaper...
We have 3,000 foreign investment projects in the
country... It just keeps growing."
The country is already strong in captives. Outsourcing
Malaysias goal, Cayzer said, is to start to "brand local
companies." The strategy, he said, is "to redevelop the
relationships we have with the [multinationals]. We
dont have to recreate them. We do have to enhance or
capture more mindshare in the American services
sector. Thats something we have to aggressively go
for."
Concluded the Prime Minister before he took
proclamation pen in hand and somebody found the
volume knob on the speakers at the Hilton, "We
believe we have many advantages we can share --
people who are truly multilingual and multicultural. I
am here to say to you, come to Malaysia and you will
see many countries of Asia. Its a cosmopolitan
country."
The recorded disco thumping continued as cameras
flashed and he worked the crowd on his way out of
the room, still smiling, still shaking hands. Malaysia is
on the move.
Outsourcing's next big
thing--Malaysia?
India and China may be the world's premier
outsourcing spots now, but Malaysia is fast
emerging as a serious contender for global
off shoring.
In the firm's latest study, Malaysia is ranked as
the third most-attractive destination for
shared services and outsourcing, behind
India and China. Besides sending to Malaysia
jobs in areas such as manufacturing and call
centers, companies are using the country as a
base for shared services like marketing and
IT functions to support their operations in
other countries.
India took the top spot in AT Kearney's 2004 off
shoring index because of its cost advantages, as
well as its depth and breadth of off shoring
experience and the availability of skilled labor.
Although China trails India in outsourcing
experience and qualifications, its large educated
work force and low costs propelled it to second
place.
Still, Malaysia's well-developed infrastructure,
attractive business environment and strong
government support makes it a "rising alternative
to India and China.
"The government's positioning of Malaysia as a hub
for services and technology innovation has
resulted in a number of multinationals locating
some of its global or regional operations in
Malaysia.
Although India and China came out on top in
the company's study, they have higher
political and economic risks, as well as
relatively weak infrastructures. Moreover,
China has to resolve issues of intellectual-
property piracy and political red tape. By
comparison, Malaysia has a relatively more
stable political climate backed by consistent
economic growth. But still, the limited size
and quality of Malaysia's work force could
be possible impediments in the country's
quest for a bigger share of the global IT
services and business process outsourcing
pie. This market is expected to cross the
$750 billion mark globally by 2006.
To meet the demand for skilled IT labor, the
report said, the educational system in India
produces an estimated 2 million English-
speaking graduates with strong technical
backgrounds yearly. In contrast, the pool of
IT and engineering graduates in Malaysia
totals 75,000 annually. Malaysian Prime
Minister Abdullah Ahmad Badawi spoke of
the importance of the off shoring and
shared services market to the country's
Multimedia Super Corridor project, an
attempt to develop a high-tech industrial
zone like Silicon Valley.
According to Badawi, off shoring is one
of the key business drivers in the
corridor project. Multinational
companies like Ericsson, HSBC,
Electronic Data Systems, IBM,
Motorola and Prudential have all
planted global services centers in the
Multimedia Super Corridor, he said.
The Malaysian government further
expects to create at least 10,000 "high-
value jobs" in the shared services
industry by 2010, Badawi added.
Growing Calls in Malaysia
The Malaysian call centre industry has seen
considerable growth over the past decade; Telecom
Malaysia ran the only operational call centre in the
country 10 years ago and now there are over 575
call centres throughout the country employing an
estimated 12,000 people. Such a trend reflects the
growing importance of the services sector. It is also
a clear manifestation of the changing economic
structure of the Malaysian economy. Without
doubt the growth of the call centre industry has
also added a new form of employment opportunity
to Malaysians. Of those organizations operating
call centers, 48% have been doing so for at least 7
years. However, the market continues to grow,
with 34% operating for less than 4 years, including
7% that have entered the market in the past 12
months.
Based on research carried out by call centres.net,
over the next 12 months seat growth is predicted
to be healthy in Malaysia where it is estimated
that the number of seats will rise approximately
15% to 13,750.
It was only recently, in 1999, that the Call Centre
Association of Malaysia (CCAM) was founded
and in line with the subsequent growth in the
industry it continues to withhold their objectives:
to develop and promote service standards in the
customer service industry and provide a platform
for members to achieve accreditation within the
industry and to promote the development of
programs to assist members in the growth of the
call centre sector, thus making Malaysia the
regional hub for the call centre industry in the
region.
Part of the success of the countrys ability to steal a
larger proportion of the available call centre
work in the Asia Pacific region lies in its
multicultural population which can support
more that just the English language; India with
its large English speaking population has been
the site favored by US-based companies and the
Philippines in the region has slowly emerged as
another centre because of the dominant use of
American English. However, Malaysia has
advantages in other areas. While India and the
Philippines can offer English language support,
Malaysia has the multicultural edge in that it can
offer services in multiple Asian languages; for
example, Scicom's centre in Kuala Lumpur offers
10 native languages.
The country has been slow to adopt CRM
best practices and strategy and it has only
been in recent years that investment in
CRM technology started. Big local banks,
Telcos, airlines and insurance companies
have set up call centers to develop closer
customer relations. Unfortunately
however, they are still relatively low in
number, as most local businesses have
not seen the benefit and the importance of
developing customer services. More often
than not, the customer relation function is
seen as part of the call centre activity
where the ultimate benefits it can bring to
the company are not realized.
Malaysian call centers have suffered from
operational problems in the past brought
about by staffing issues as the agent pool
has only recently seen a rise in numbers -
this is in part due to the raising of the
profile of the industry and the ground it
has gained in promoting itself as a viable
professional career path. The CCAM has
been working tirelessly in the promotion of
management courses and training in
customer relationship management to
develop education and is looking to
collaborate with universities and accredited
training centers to further enhance
management skills.
Much has to be done still in order to woo
investors and to heighten the performance of
existing call centers. To push Malaysia to be the
region's call centre hub, various hurdles still
need to be overcome. The most obvious ones
are immigration issues on foreign skills, and
market perception of call center agents.
In order to attract investment, the Malaysian
government has been offering a wide range of
incentives. The IMD World Competitiveness
Yearbook 2002 rates Malaysia highly for the
level of investment incentives offered (7.7 out
of 10). Tax exemption and concessions are
proving to be a boon for the call centre
industry as the government has introduced a
range of measures to encourage foreign
investment.
Malaysia has the potential to be a major call
centre hub in the Asia-Pacific region because
of its competitive cost structure, widely
spoken English language skills and ready
access to other Asian language
competencies, skilled manpower, matured
support network of IT and training
companies, and an excellent
telecommunications infrastructure.
Looking to the region's future, Martin Conboy,
callcentres.net CEO said, Trying to predict
what will happen in the market is always
difficult. But the shift of less complex
transactions to cost effective destinations
throughout the world was bound to
continue.
Conboy warns that sustained growth is only
possible if it is accompanied by concerted
staff development.
"There is a lot of opportunity for growth in
Malaysia, as long as government
continues to recognize the need to
institute education programs for the
industry," he said. "They have to realize
that Malaysia has a fabulous opportunity
to become part of the world's customer
service engine room, but the global market
is highly competitive and attention,
innovation and industry accredited
training programs are required."
Malaysia Aims to Join the Tops
in Outsourcing Industry

TAKEAWAY: Malaysia could be in reach of Asia
Pacific's number-one outsourcing spot for
information technology support, research and
analytical processes as well as supply chain
management. To achieve the top spot, Malaysia
would need to identify its competitive edge in
order to attract more multinational companies.
According to a Deloitte study that examined the
competitiveness of off shoring locations in the Asia
Pacific region, the top spot for IT support was
Bangalore, while Singapore held the number-one
spot for analytic and supply chain management.
Malaysia's economic growth, along with its efforts
to improve its infrastructure and grow its talent
pool, are all making the area a stronger contender
in the Asian Pacific market.
In todays highly competitive global environment,
the battle for talent knows no geographic
boundaries. Last year, Korn/Ferry
International, the parent company for
outsourced recruitment firm Future step,
surveyed 185 CEOs across Asia and found that
33 percent of those surveyed in Southeast Asia
felt
Malaysia has the best growth potential during the
next five years. Its plans will be bolstered by the
governments recent five-year plan.
Malaysia has become a regional hub for shared
services and begun to attract more significant
levels of foreign investment. In this context, the
unique human capital challenges facing
companies in Malaysia will be critical to its
socio-economic health.
Indeed, the enthusiasm about Malaysias prospects is
tempered by the growing need to attract and retain
top talent. The country has always been a key exporter
of talent, providing people with strong language and
multicultural skills. That fact continues to pose issues
for local companies as multinationals woo workers
away. Further compounding the situation are
hundreds of locally owned recruitment and staffing
agencies that have created a highly fractured approach
to talent acquisition in this market. In Malaysia, the
phrase recruitment services has typically referred to
the business of mass hiring low- to mid-level positions
for blue collar or temporary workers and is farmed out
to multiple agencies at a time. Traditionally, business
process outsourcing (BPO) here has included
compensation and benefits and other HR-related
functions. However, even in this BPO hub, the idea of
specifically outsourcing recruitment to one company
in a more strategic and efficient way is relatively new.
Unfortunately, many Malaysian recruitment
practices are outdated, with the same
methods and technologies popular a decade
ago still common. For example, many HR
managers rely on fax machines to send job
descriptions to agencies. Too often,
companies exclusively seek outside talent,
overlooking the fact that they potentially
already have someone within the
organization that fits the bill. Frequently,
there is no system in place to match needs
with the best candidates. Furthermore, many
organizations still believe that their name
and prestige is enough to attract top-notch
professionals, an attitude that can be nave in
todays labor market.
Future steps survey clearly showed the impact
this is having. Those who took the survey
indicated an inability to find attractive
positions. While 60 percent said they have
updated their CV in the past six months
(with 80 percent of those who have not
intending to do so this year), 36 percent said
they are still with their current employer
only because they have not seen a vacancy
that interests them in recent months. There is
growing recognition that a skilled talent
provider can offer expertise in executing
successful employer branding campaigns
that reach the most sought-after candidates
while also fostering a sense of loyalty among
current employees.
Here is a short list of other factors driving
RPO in Malaysia today:

Continued Growth of Shared Services. In
2004, A.T. Kearney ranked Malaysia as the
third most attractive off-shoring location
(behind India and China) for BPO services
needed by companies across Asia. The
Governments incentive programs and the
shift from manufacturing to a service-
oriented center have resulted in a rebound
in consulting positions, supported by the
continued growth of the Multi-Media
Corridor.

Expansion of GLCs. Government-Linked
Companies such as Telecom Malaysia are
expanding to the Middle East, India, and
other ASEAN countries, thereby increasing
the need to find talent across borders and
creating a very dynamic talent flow.
Additionally, they are now focused on
performance-driven growth to compete
with leading global companies. As a result,
these organizations are seeking new
management teams to drive this growth
and require talent partners with global
reach to help them build teams quickly.
Changing Expectations of Job Seekers. The
Korn/Ferry survey indicated that more than 60
percent of CEOs in Southeast Asia think that
offering adequate compensation is the best way
to gain and retain talent, followed by offering
constant motivation and stimulating
professional growth and development (58
percent each). Indeed, Future steps subsequent
survey showed that Malaysias future
executives are seeking such opportunities.
When asked what the most significant thing a
potential employer could do to make them
leave their current company was, offering a
promotion came in second (18 percent) behind
investing in their professional growth and
development (40 percent).
Malaysian Overview
The Malaysian economy expanded
by 5.3 percent in 2005, and the
outlook remains broadly positive.
In 2005, real GDP expansion was supported
mainly by strong growth in manufacturing
output (4.9 percent), spurred by the recovery
in the production of electronic and electrical
(E&E) products in the latter part of the year,
and sustained activity in the services sector
(6.5 percent), following robust growth in
consumption, and in trade and business
services, including finance.
Exports of goods and services grew by 8.4
percent in 2005, supported by higher exports
of manufactured products, minerals,
especially crude oil and LNG, and higher
growth in tourism receipts. Imports of goods
and services grew by 7.6 percent.
Aggregate domestic demand expanded by
7.3 percent in 2005, reflecting sustained
growth in private consumption (9.2
percent) and higher public consumption
(5.9 percent). Gross fixed capital formation
(including changes in stocks) expanded by
4.7 percent. Looking ahead, despite some
softening in aggregate domestic demand,
partly from rising inflation and higher
interest rates, a further increase in the
global demand for E&E products is
expected to raise overall growth to 5
percent in 2006 and 5.7 percent in 2007.
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